Definition & Nature of Company, Types of Companies, Formation of Companies

A Company is a legal entity that is formed and registered under the provisions of the Companies Act, 2013. A company is a separate legal entity, distinct from its members or shareholders, and is capable of owning property, entering into contracts, and suing or being sued in its own name.

The Companies Act, 2013 provides the legal framework for the incorporation, management, and operation of companies in India. The Act defines a company as “a company formed and registered under this Act or an existing company.”

Features of company

A company is a legal entity that is formed and registered under the Companies Act, 2013 in India. The following are the key features of a company:

• Separate legal entity: A company is a separate legal entity that is distinct from its members or shareholders. It can own property, enter into contracts, and sue or be sued in its own name.
• Limited liability: The liability of the members or shareholders of a company is limited to the amount of capital they have invested in the company. This means that the personal assets of the members or shareholders are not at risk in case of any loss incurred by the company.
• Perpetual succession: A company has a perpetual succession, which means that it continues to exist even if the members or shareholders change. The death or resignation of a member or shareholder does not affect the existence of the company.
• Common seal: A company has a common seal, which is used to authenticate its documents. The common seal is affixed on the documents in the presence of the directors or other authorized signatories.
• Transferability of shares: The shares of a company are freely transferable, subject to certain restrictions mentioned in the Articles of Association. This means that the members or shareholders can sell or transfer their shares to another person.
• Separate management: A company is managed by a board of directors, who are elected by the shareholders. The management and control of the company are separate from its ownership.
• Statutory compliance: A company is required to comply with various legal requirements and obligations under the Companies Act, 2013, such as maintaining proper books of accounts, holding annual general meetings, filing annual returns, and complying with various regulatory requirements such as taxation laws, labor laws, and environmental laws.
• Capital raising: A company can raise capital by issuing shares or debentures to the public or by borrowing from banks or financial institutions. This provides a company with a wide range of options for raising funds.
• Democratic control: A company is owned by its shareholders, who have the right to vote on important matters such as the appointment of directors, dividend distribution, and amendment of the Articles of Association. This ensures democratic control and decision-making in the company.

Types of Companies

In India, there are several types of companies that can be incorporated under the Companies Act, 2013. Each type of company has its own set of regulations and requirements. The following are the types of companies in India with relevant laws:

• Private Limited Company: A private limited company is a type of company that has a minimum of two and a maximum of 200 shareholders. The liability of the shareholders is limited to the amount of capital they have invested in the company. The Companies Act, 2013 provides regulations for the formation and management of private limited companies.
• Public Limited Company: A public limited company is a type of company that has a minimum of seven shareholders, and there is no maximum limit on the number of shareholders. The shares of a public limited company are freely transferable, and the liability of the shareholders is limited to the amount of capital they have invested in the company. The Companies Act, 2013 provides regulations for the formation and management of public limited companies.
• One Person Company (OPC): An OPC is a type of company that is formed with only one shareholder who is also the director of the company. The liability of the shareholder is limited to the amount of capital they have invested in the company. The Companies Act, 2013 provides regulations for the formation and management of OPCs.
• Section 8 Company: A section 8 company is a type of company that is formed for promoting commerce, art, science, religion, charity, or any other useful object. The profits of a section 8 company are used for promoting its objectives, and there are restrictions on the distribution of profits to its members. The Companies Act, 2013 provides regulations for the formation and management of section 8 companies.
• Limited Liability Partnership (LLP): An LLP is a type of company that combines the features of a partnership and a company. The liability of the partners is limited to the amount of capital they have invested in the company. The LLP Act, 2008 provides regulations for the formation and management of LLPs.
• Producer Company: A producer company is a type of company that is formed by farmers, artisans, and other producers. The main objective of a producer company is to improve the income and livelihood of its members. The Companies Act, 2013 provides regulations for the formation and management of producer companies.

Formation of Companies

To form a company in India, the following steps must be followed:

• Obtain a Digital Signature Certificate (DSC) for the proposed directors and subscribers of the company.
• Apply for Director Identification Number (DIN) for the proposed directors.
• Apply for the availability of the proposed company name.
• Draft and file the Memorandum of Association (MOA) and Articles of Association (AOA) of the company.
• Obtain a Certificate of Incorporation (COI) from the Registrar of Companies (ROC).

Once a company is incorporated, it must comply with various legal requirements and obligations under the Companies Act, 2013. These include maintaining proper books of accounts, holding annual general meetings, filing annual returns, and complying with various regulatory requirements such as taxation laws, labor laws, and environmental laws.

Failure to comply with these legal requirements can result in penalties and fines, and in some cases, may even lead to the winding up of the company. Therefore, it is important for companies to comply with all the legal requirements and obligations under the Companies Act, 2013 and other applicable laws in India.

Disadvantages

Along with the advantages, there are also some disadvantages associated with forming and running a company. The following are some of the common disadvantages of a company:

• Regulatory compliance: A company is subject to various legal and regulatory requirements under the Companies Act, 2013 and other applicable laws. This includes maintaining proper books of accounts, filing annual returns, complying with various taxation and labor laws, and obtaining various licenses and permits. The non-compliance with these requirements can result in penalties, fines, and legal liabilities.
• Costly formation and maintenance: Forming and maintaining a company can be costly as it involves various fees and expenses, such as registration fees, legal fees, accounting fees, and audit fees. The ongoing compliance requirements can also add to the cost of running a company.
• Complex legal structure: A company has a complex legal structure, which can make it difficult to understand and comply with the various legal and regulatory requirements. The management and ownership structure can also be complex, particularly in the case of large companies with multiple shareholders.
• Separation of ownership and management: A company is managed by a board of directors, who are appointed by the shareholders. This separation of ownership and management can lead to conflicts of interest and communication gaps between the shareholders and the management.
• Public disclosure: A company is required to disclose certain information to the public, such as its financial statements, shareholding pattern, and other regulatory filings. This can lead to a loss of privacy and confidentiality.
• Shareholder disputes: In case of a dispute between the shareholders, it can be difficult to resolve as the company is a separate legal entity and the personal assets of the shareholders are not at risk.
• Limited flexibility: A company is bound by its Articles of Association and other legal and regulatory requirements. This can limit the flexibility of the company to adapt to changing market conditions and business needs.