The term ‘company‘ holds historical significance, deriving from the Latin word for an association of persons who dined together. In the legal context, a company is a distinct corporate body with separate status and personality from its members. This article explores the concept of a company, its legal definition, types of companies, classification based on liability, and the process of incorporating a company.
WHAT IS A COMPANY?
The word “Company” is derived from the Latin word (COM= with or together; PANIS= bread), and it originally referred to an association of persons who took their meals together.
A Company under Law is a corporate body and legal person having status and personality distinct and separate from the members constituting it. It is called a body corporate because the persons composing it are made into one body by incorporating it according to the law and clothing it with legal personality.
The word “corporation” is derived from the Latin term ‘corpus’ which means ‘body’. A corporation is a legal person created by a process other than natural birth. As a legal person, a corporate is capable of enjoying many rights and incurring many liabilities of a natural person.
As per Section 2(20) of the Companies Act, 2013 Company means, “a Company incorporated under this act or under any previous Company Law.”
This Act means: The Companies Act, 2013
Any previous Company Law, as per Section 2(67) of the Companies Act, 2013 means any of the laws specified below:
1. Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866);
2. the Indian Companies Act, 1866 (10 of 1866);
3. the Indian Companies Act, 1882 (6 of 1882);
4. the Indian Companies Act, 1913 (7 of 1913);
5. the Registration of Transferred Companies Ordinance, 1942 (Ord. 54 of 1942);
6. the Companies Act, 1956 (1 of 1956); and
7. any law corresponding to any of the aforesaid Acts or the Ordinances and in force— in the merged territories or in a Part B State (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); orin the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), in so far as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968), in so far as other corporations are concerned;
8. the Portuguese Commercial Code, in so far as it relates to sociedades anonimas; and
9. the Registration of Companies (Sikkim) Act, 1961 (Sikkim Act 8 of 1961);
INTRODUCTION OF COMPANIES
The Companies Act, 2013 provides for the kinds of companies that can be incorporated under the act. The three (3) basic types of companies which can be registered under this act are:
- Public Company
- Private Company
- One Person Company (to be formed as a Private Limited Company).
According to Section 3(1) of the Companies Act, 2013; a company may be formed for any lawful purpose by-
1. Seven or more person, where the company to be formed is to be a public company;
2. Two or more person, where the company to be formed is to be a private company;
3. One person, where the company to be formed is to be a one person company (to be formed as a private limited company)
By subscribing their names or his name to a memorandum and complying with the requirements of the act in respect of registration.
According to Section 3(2) of the Companies Act, 2013, a company formed under Section 3(1) of the companies act, 2013 may be either;
1. a company limited by shares;
2. a company limited by guarantee;
3. an unlimited company;
Types of Companies:
Private Limited Company: As per Section 2(68) of the Companies Act, 2013, Private Company means a Company having a minimum paid up share capital as may be prescribed and which by its articles;-
1. restricts the right to transfer its shares;
2. except in the case of One person company, limit the number of its members to two hundred. Joint holders of shares will be considered as one shareholder. Person in employment of the Company will not be considered as shareholder of the Company.
3. Prohibits any invitation to the public to subscribe for any securities of the Company.
Public Limited Company: As per Section 2(71) of the Companies Act, 2013, Public Company means a Company which –
1. is not a private Limited company
2. has a minimum paid up share capital as may be prescribed
A company that is a subsidiary of a company public limited company, shall be deemed to be a public company for the purpose of the Companies Act, 2013 even though such subsidiary company continues to be a private limited company in its articles.
One Person Company: As per Section 2(68) of the Companies Act, 2013, One person company means a Company that has only one person as a member.
Classification of Company:
Classification on the basis of Incorporation
1. Statutory Companies: These are constituted by a Special Act of Parliament or State Legislature. The provisions of the Companies Act, 2013 do not apply to them. Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.
2. Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under any previous company law and registered with the Registrar of Companies, fall under this category.
Classification on the basis of Liability: Under this category there are three types of companies: –
1. Unlimited Companies: In this type of company, the liability of members of the company is unlimited, Section 2(92) of the Companies Act, 2013 provides that unlimited company means a company not having any limit on the liability of its members, such companies may or may not have share capital. They may be either a public company or a private company. The members is liable to the company and to any other person.
2. Companies limited by guarantee: Section 2(21) of the Companies Act, 2013 provides that a company that has the liability of its members limited to such amount as the members may respectively undertake, by the memorandum, to contribute to the assets of the company in the event of its being wound-up, is known as a company limited by guarantee. The members of a guarantee company are, in effect, placed in the position of guarantors of the company’s debts up to the agreed amount. The members is liable to the company and to any other person.
3. Companies limited by shares: A company that has the liability of its members limited by the liability clause in the memorandum to the amount, if any, unpaid on the shares respectively held by them is termed as a company limited by shares. Section 2(22) of the Companies Act, 2013 provides that “company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. For example, a shareholder who has paid Rs.75 on a share of face value Rupees 100 can be called upon to pay the balance of Rupees.s25 only. Companies limited by shares are by far the most common and it may be either public or private.
INCORPORATION OF COMPANY
Application for registration of a company shall be filled, with the Registrar within whose jurisdiction the registered office of the Company is proposed to be situated in Form SPICE + (Simplified Proforma for Incorporating Company Electronically Plus)along with SPICE +MOA, SPICE +AOA , Form-INC 35 (AGIL-PRO-S) and Form INC-9 Declaration by subscribers and first directors.
The following documents and information are required for the registration of the Company.
1. The memorandum and articles of the company duly signed by all the subscribers to the memorandum, who shall add his name, address, description and occupation, if any, in the presence of at least two witness who shall attest the signature and shall likewise sign and his name, address, description and occupation, if any and the witness shall state that “I witness to subscriber/subscriber(s), who has/have subscribed and signed in my presence (date and place to be given); further I have verified his or their Identity Details (ID) for their identification and satisfied myself of his/her/their identification particulars as filled in”
2. Declaration from a professional i.e. advocate, a chartered accountant, cost accountant or a company secretary in practice shall provide in Form No. INC-8.
3. a declaration from each of the subscribers to the memorandum and from persons named as the first Directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
4. the address for correspondence till its registered office is established;
Conclusion: Understanding the concept of a company, its types, classification based on liability, and the incorporation process is essential for anyone venturing into the corporate world. By grasping the legal definition of a company, knowing the various types and classifications, and familiarizing oneself with the necessary documents for incorporation, individuals can navigate the company registration process with confidence and ensure compliance with the Companies Act, 2013.
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