INTRODUCTION
What is a Company?
The term “company” does not have a purely technical or legal definition. It could be said to signify a grouping of people who share a common object or objects. People may associate themselves for a wide range of goals, including both materialistic and immaterial ones. However, the term “company” is typically only used to refer to groups that have come together for profit-making goals. When used in the aforementioned context, the term “company” can be loosely defined as a voluntary group of individuals who have got together for the purpose of conducting some activity and splitting the profits there from.
Two primary organisational types are provided by Indian Law for these associations the first one is partnership and the other one is company. Even though both are commonly referred to as “businesses,” the statute views companies and company law as separate from partnerships and partnership law. The Partnership Act of 1932 and the Limited Liability Partnership Act of 2008 codify partnership law in India. Both of these laws are based on the law of agency, wherein each partner becomes the other’s agent. As a result, they provide an appropriate framework for an association of a small group of people who have trust and confidence in one another. A more complex organisational structure is needed for a more complicated type of association with a large and erratic membership. This organisation should, in theory, grant the association corporate personality, which acknowledges that it is a separate legal entity with obligations and rights that are distinct from those of its members. An association can quickly and affordably get this by registering as a corporation under the Act.
It should be emphasised that the Act even permits a corporation to be founded and registered for reasons other than profit-making, such as the promotion of business, art, science, sports, religion, or charity. A company that was incorporated under this Act or any prior company legislation is referred to as a “company” in accordance with section 2(20) of the CA, 2013. According to a common definition, a company is “an incorporated association that is an artificial person, having a separate legal personality, with a perpetual succession, a common seal (if any), and a common capital composed of transferable shares and restricted liability.”According to Lord Justice Lindley – “A company is an association of many persons who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising there from. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute to it or to whom it pertains are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted.” In G.V. Pratap Reddy Through G.P.A. TSR Research (P.) Ltd. v. K.V.V.S.N. Associates [2016] 70 (SC)1, the Supreme Court of India held that where notice inviting tender (NIT) by State of Telangana required that bidder must be an individual/company, word company in NIT could only mean a company as understood under Companies Act and cannot be read to include a firm and, therefore, bid of respondent which was neither an individual nor a company but a firm was rightly rejected by State.
Types of Companies:
> On the basis of incorporation:
1. STATUTORY COMPANIES: These businesses are established by a unique Act of the State or Federal Legislature. These businesses were established primarily to offer public services. Even if they are largely controlled by that Special Act, the CA, 2013 will nevertheless apply to them, unless the stated provisions are in conflict with the terms of the Act that established them (as Special Act prevails over General Act). These kinds of businesses include, for instance, the Reserve Bank of India and the Life Insurance Corporation of India.
2. REGISTERED COMPANIES: Registered companies are those that have been established in accordance with the CA, 2013, or any prior Company Law. These businesses are created when they register under the Companies Act and receive a certificate of incorporation from the Registrar.
> On the basis of liability:
1. LIMITED BY SHARE: A corporation limited by shares is one whose memorandum limits the responsibility of its members to the amount, if any, unpaid on the shares, respectively, that they each hold. The responsibility may be imposed both during the company’s operation and during its winding up. When the shares are fully paid off, they are no longer liable. For instance, a shareholder who has already paid 75 on a share with a face value of 100 may only be required to pay the remaining 25. The majority of businesses are limited by shares and can be either public or private.
2. LIMITED BY GUARANTEE: The responsibility of the members of a company limited by guarantee is restricted to the amount that each member may agree, by the memorandum, to contribute to the company’s assets in the case of its dissolution. In the case of such firms, the members’ liability is capped by the amount of the guarantee they have made. Members of such a corporation are designated as guarantors of the company’s obligations up to the specified sum. Various examples of guarantee corporations include clubs, trade associations, research associations, and societies for promoting various objects.
3. UNLIMITED LIABILITY COMPANY: An unlimited company is one that does not place a cap on the responsibility of its shareholders. In this case, the members’ liability for the obligations of the firm is unlimited and is based on their separate ownership interests. These businesses might or might not have share capital. They could be a private firm or a public one.
> On the basis of members:
1. PUBLIC COMPANY: A corporation that is not private is referred to as a public company2.A public business may be established by seven or more people for any legitimate reason.3 Every publicly traded firm must have a minimum of three directors on its board.4 A public business must finish its name with the phrase “Limited.”5 Being allowed to freely transfer shares and debt obligations to the public, as opposed to private companies, is the very definition of a public corporation. Only publicly traded corporate shares can be traded on a stock market. Public companies include private companies that are subsidiaries of other public companies.
2. PRIVATE COMPANY: A private corporation is one whose by laws restrict the ability to transfer shares and cap the number of members at 200 (unless in the case of an OPC). A private company may be established by two or more people for any legitimate reason.6 Every private company’s board of directors must have a minimum of two directors.7 A private business must finish its name with the letters “Private Ltd.”8 Under the Companies Act, Private Companies are granted a number of benefits and exemptions.
3. ONE PERSON COMPANY: The Companies Act of 2013 fundamentally overhauled India’s corporate rules by introducing a number of new ideas that were not present in the Companies Act of 1956. The introduction of the OPC concept was one of them. This created a way to launch enterprises that gives limited liability in contrast to sole proprietorships and partnerships, as well as the flexibility that a company form of entity affords. One Person Company refers to a business with just one member9. OPC (as a private corporation) may be established by one person for any permissible goal10. OPC’s Board must have a minimum of one director, who may also serve as the organization’s lone director.11 Unlike other private corporations, OPCs are only permitted to have one shareholder or member. The requirement that the company’s only member name a nominee when registering the business distinguishes OPCs from other types of businesses. Since an OPC only has one member, the nominee will have the option of accepting or declining to take his place after his death. Other businesses do not experience this because they adhere to the idea of everlasting succession.
> On the basis of domicile:
1. FOREIGN COMPANY: Any corporation or body corporate that was formed outside of India is referred to as a “foreign company” if it: (a) maintains a physical or virtual office in India; (b) engages in any other form of economic activity there.
The Companies Act, 2013 prescribes the provisions that apply to such companies in Sections 379 to 393 of the law.12
2. INDIAN COMPANY: Any company formed and registered in India is known as Indian Company.
> Other Companies:
1. GOVERNMENT COMPANY: A company is referred to as a “Government company” if the Central Government, a State Government, a group of State Governments, or a combination of the Central Government and one or more State Governments owns at least 51% of the paid-up share capital. This definition also includes a subsidiary company of a Government company. Explanation – Where shares with varied voting rights have been issued, “paid-up share capital” shall be interpreted as “total voting power.”13
2. SMALL COMPANY: A company is considered “small” if it meets both of the following criteria:
a. Its paid-up share capital is less than 50 lakh rupees, or any higher amount that may be prescribed, but not more than 10 crore rupees; and
b. Its turnover, as measured by its profit and loss account for the most recent financial year, is less than 2 crore rupees, or any higher amount that may be prescribed, but not more than 100 crore rupees.14
With the exception that nothing in this article applies to holding companies, subsidiaries, companies registered under section 8, and businesses or other legal entities covered by special Acts;
3. SUBSIDIARY COMPANY: A company that is owned or managed by a parent or holding corporation is referred to as a subsidiary. The parent firm often owns a majority of the subsidiary company. As a result, the parent company gains control over the subsidiary. In some circumstances, gaining control is as simple as being the dominant shareholder. A corporation is referred to as a “wholly owned subsidiary” when its parent company holds every share of common stock in it. A parent corporation and a subsidiary are regarded as distinct legal entities. This limits joint liabilities amongst the businesses as tax and debt are paid by the individual organisations. Subsidiary businesses often have their own brands and are independent from the parent corporation. But the parent firm will inevitably have an impact on how the subsidiary company runs. The parent company can choose the board of directors and set the general corporate strategy because it is the largest stakeholder.
4. HOLDING COMPANY: A parent company, limited liability company, or limited partnership that controls a significant number of voting shares in another company is known as a holding company. The shareholding is set up so that the holding company can govern the subsidiary firm’s management and control its policies.A holding company manages the assets of other companies, but it only retains management functions and is not actively involved in overseeing a corporation’s daily operations.A company that is owned and controlled by another business is referred to as a subsidiary under Indian company law, while the latter is regarded as a holding company. A holding company’s main goal is to manage other businesses, including other businesses, limited liability partnerships, and limited liability companies. Holding businesses are able to own a variety of assets, including immovable things, securities, patents, and trademarks. “Completely-owned subsidiaries” refer to companies wholly owned by a holding company. Although a holding company can hire and fire managers from the businesses it controls, these managers are ultimately in charge of running the businesses. Therefore, it is crucial for business owners to monitor their organisations and make sure they are running smoothly.
5. DORMANT COMPANY: An inactive business or one that has been founded and registered under this Act for a future project, to hold an asset, or to hold intellectual property but has not engaged in any substantial accounting transactions may apply to the Registrar for the status of a dormant company. After reviewing the application, the Registrar will grant the applicant the status of a dormant corporation and issue a certificate. A corporation is considered “inactive” if it has not conducted any business operations for the previous two fiscal years, has not made any material accounting transactions, and/or has not submitted financial reports and annual returns. The Registrar must notify the firm in question and record its name in the register kept for dormant corporations if it hasn’t submitted financial statements or annual reports for two fiscal years in a row. The Registrar has the authority to remove an inactive company’s name from the register of dormant firms if it has disobeyed this section’s provisions.
6. SECTION 8 COMPANY: A company licenced under Section 8 of the 2013 Companies Act is referred to as a Section 8 company. It is a non-profit corporation (NPO) that was established with the goal of advancing business, the arts, science, sports, education, research, etc. Such businesses pay no dividends to any of their members and instead use their profits to advance their mission. These businesses have social welfare, charitable, and organisational goals that benefit society as a whole registrations. The central government obtains the incorporation certificates of these businesses, and they are obligated to follow its regulations.
CONCLUSION
We saw several business types and their operations we learned that each is unique and important. Every enterprise is crucial to the development of the world. We can therefore draw the conclusion that The Companies Act, 2013, is very significant since it sets boundaries for corporations so that their legal purview is preserved. Since the businesses are required to operate inside a legal framework, this defined scope ultimately benefits the end customers. As a result, these businesses continue to operate inside a defined perimeter and do not abuse their authority. The Companies Act, 2013, describes the notion of class action cases in order to make shareholders and other stakeholders more aware and knowledgeable about their rights. The Companies Act is necessary since it allows for class action lawsuits for shareholders. The aforementioned Act gives stockholders more authority. It requires that at least one female director be appointed to the board (for a specific class of companies), which increases the number of women employed in the corporate sector.
Notes:
1 G.V. Pratap Reddy Through G.P.A. TSR Research (P.) Ltd. V. K.V.V.S.N. Associates [2016] 70 (SC).
2 Section 2(71) Of The Companies Act, 2013.
3 Section 3(1) Of The Companies Act, 2013.
4 Section 149(1) Of The Companies Act, 2013.
5 Section 4(1)(A) Of The Companies Act, 2013.
6 Section 3(1) Of The Companies Act, 2013.
7 Section 149(1) Of The Companies Act, 2013.
8 Section 4(1)(A) Of The Companies Act, 2013.
9 Section 2(62) Of The Companies Act, 2013.
10 Section 3(1) Of The Companies Act, 2013.
11 Section 149(1) Of The Companies Act, 2013.
12 Section 2(42) Of The Companies Act, 2013.
13 Section 2(45) Of The Companies Act, 2013.
14 Section 2(85) Of The Companies Act, 2013.
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