The word 'Company'
is an amalgamation of the Latin word 'Com' meaning "with or
together" and 'Pains' meaning "bread". Originally, it
referred to a group of persons who took their meals together. A company is
nothing but a group of persons who have come together or who have
contributed money for some common person and who have incorporated
themselves into a distinct legal entity in the form of a company for that
purpose. Under Halsbury’s Laws of England, the term "company"
has been defined as a collection of many individuals united into one body
under special domination, having perpetual succession under an artificial
form and vested by the policies of law with the capacity of acting in
several respect as an individual, particularly for taking and granting of
property, for contracting obligation and for suing and being sued, for
enjoying privileges and immunities in common and exercising a variety of
political rights, more or less extensive, according to the design of its
institution or the powers upon it, either at the time of its creation or
at any subsequent period of its existence. However, the Supreme Court of
India has held in the case of State Trading Corporation of India v/s CTO
that a company cannot have the status of a citizen under the Constitution
A company as an
entity has several distinct features which together make it a unique organization.
The following are the defining characteristics of a company :-
Legal Entity :
under law, a company becomes a separate legal entity as compared to its
members. The company is different and distinct from its members in law. It
has its own name and its own seal, its assets and liabilities are separate
and distinct from those of its members. It is capable of owning property,
incurring debt, borrowing money, having a bank account, employing people,
entering into contracts and suing and being sued separately.
The liability of
the members of the company is limited to contribution to the assets of the
company upto the face value of shares held by him. A member is liable to
pay only the uncalled money due on shares held by him when called upon to
pay and nothing more, even if liabilities of the company far exceeds its
assets. On the other hand, partners of a partnership firm have unlimited
liability i.e. if the assets of the firm are not adequate to pay the
liabilities of the firm, the creditors can force the partners to make good
the deficit from their personal assets. This cannot be done in case of a
company once the members have paid all their dues towards the shares held
by them in the company.
A company does not
die or cease to exist unless it is specifically wound up or the task for
which it was formed has been completed. Membership of a company may keep
on changing from time to time but that does not affect life of the
company. Death or insolvency of member does not affect the existence of
A company is a
distinct legal entity. The company’s property is its own. A member
cannot claim to be owner of the company's property during the existence of
Transferability of Shares:
Shares in a company
are freely transferable, subject to certain conditions, such that no
share-holder is permanently or necessarily wedded to a company. When a
member transfers his shares to another person, the transferee steps into
the shoes of the transferor and acquires all the rights of the transferor
in respect of those shares.
A company is a
artificial person and does not have a physical presence. Therefore, it
acts through its Board of Directors for carrying out its activities and
entering into various agreements. Such contracts must be under the seal of
the company. The common seal is the official signature of the company. The
name of the company must be engraved on the common seal. Any document not
bearing the seal of the company may not be accepted as authentic and may
not have any legal force.
Capacity to sue and being sued:
A company can sue
or be sued in its own name as distinct from its members.
A company is
administered and managed by its managerial personnel i.e. the Board of
Directors. The shareholders are simply the holders of the shares in the
company and need not be necessarily the managers of the company.
The principle of
voting in a company is one share-one vote. I.e. if a person has 10 shares,
he has 10 votes in the company. This is in direct contrast to the voting
principle of a co-operative society where the "One Member - One
Vote" principle applies i.e. irrespective of the number of shares
held, one member has only one vote.
between Company and Partnership
A Partnership firm is sum total
of persons who have come together to share the profits of the business
carried on by them or any of them. It does not have a separate legal
entity. A Company is association of persons who have come together for
a specific purpose. The company has a separate legal entity as soon as
it is incorporated under law.
Liability of the partners is
unlimited. However, the liability of shareholders of a limited company
is limited to the extent of unpaid share or to the tune of the unpaid
amount guaranteed by the shareholder.
Property of the firm belongs to
the partners and they are collectively entitled to it. In case of a
company, the property belongs to the company and not to its members.
A partner cannot transfer his
shares in the partnership firm without the consent of all other
partners. In case of a company, shares may be transferred without the
permission of the other members, in absence of provision to contrary
in articles of association of the company.
In case of partnership, the
number of members must not exceed 20 in case of banking business and
10 in other businesses. A Public company may have as many members as
it desires subject to a minimum of 7 members. A Private company cannot
have more than 50 members.
There must be at least 2 members
in order to form a partnership firm. The minimum number of members
necessary for a public limited company is seven and two for a private
In case of a partnership, 100 %
consensus is required for any decision. In case of a company, decision
of the majority prevails.
On the death of any partner, the
partnership is dissolved unless there is provision to the contrary. On
the death of the shareholder the company' existence does not get
Under the Companies
Act, 1956, not more than 10 persons can come together for carrying on any
banking business and not more than 20 persons can come together for
carrying on any other of business, unless the association is registered
under the Companies Act or any other Indian law. Any association which
does not comply with the above norms is an illegal association. Therefore,
a partnership of more 10 or 20 members, as the case may be, is an illegal
association unless the registered under the Companies Act or any other
provision does not apply in the following cases :-
- A Joint Hindu Family business
comprising of family members only. But where two or more Joint Hindu
families come together for business through partnership, the total
number of members cannot exceed 10 or 20 as the case may be, but in
computing the number of persons, minor members of such family will be
- Any association of charitable,
religious, scientific trust or organisation which is not formed with a
- Foreign companies.
When the number of
members exceed the prescribed maximum, members must register it under
Companies Act or any other Indian law.
Consequences of non-registration:
association is not recognised by law. An illegal association cannot enter
into any contract, cannot sue any members or any outsider, cannot be sued
by any members or outsiders for any of its debts. The members of the
illegal association are personally for the obligations of the illegal
association. A member may be liable to a fine of Rs. 1000. Any member of
an illegal association cannot sue another member in respect of any matter
connected with the association.
number of members
A public company
must have at least 7 members whereas a private company may have only 2
members. If the number of members fall below the statutory minimum and the
company carries on its business beyond a period of six months after the
number has so fallen, the reduction of number of members below the legal
minimum is a ground for the winding up of the company.
Company means a company which not a
2.Private Company means
a company which by its articles of association :-
- Restricts the right of members
to transfer its shares
- Limits the number of its
members to fifty. In determining this number of 50, employee-members
and ex-employee members are not to be considered.
- Prohibits an invitation to the
public to subscribe to any shares in or the debentures of the
If a private
company contravenes any of the aforesaid three provisions, it ceases to be
private company and loses all the exemptions and privileges which a
private company is entitled.
Following are some
of the privileges and exemptions of a private limited company:-
Mimimum number is members is 2
(7 in case of public companies)
Prohibition of allotment of the
shares or debentures in certain cases unless statement in lieu of
prospectus has been delivered to the Registrar of Companies does not
Restriction contained in Section
81 related to the rights issues of share capital does not apply. A
special resolution to issue shares to non-members is not required in
case of a private company.
Restriction contained in Section
149 on commencement of business by a company does not apply. A private
company does not need a separate certificate of commencement of
Provisions of Section 165
relating to statutory meeting and submission of statutory report does
One (if 7 or less members are
present) or two members (if more than 7 members are present ) present
in person at a meeting of the company can demand a poll.
In case of a private company
which not a subsidiary of a public limited company or in the case of a
private company of which the entire paid up share capital is held by
the one or more body corporates incorporated outside India, no person
other than the member of the company concerned shall be entiled to
inspect or obtain the copies of profit and loss account of that
Minimum number of directors is
only two. (3 in case of a public company)
The Company Law
Board on being satisfied that the infringement of the aforesaid 3
conditions was accidental or due to inadvertence or that on other grounds,
it just an equitable to grant relief, may grant relief to the company from
the consequences of such infringement. The infringement of the aforesaid 3
conditions does not automatically convert a private company into a public
company. It continues to remain a private company; it merely ceases to be
entitled to the privileges and exemptions available to a private company.
3.Companies deemed to be public limited company:
A private company
will be treated as a deemed public limited company in any of the following
- Where at least 25% of the paid
up share capital of a private company is held by one or more bodies
corporate, the private company shall automatically become the public
company on and from the date on which the aforesaid percentage is so
- Where the annual average
turnover of the private company during the period of three consecutive
financial years is not less than Rs 25 crores, the private company
shall be, irrespective of its paid up share capital, become a deemed
- Where not less than 25% of the
paid up capital of a public company limited is held by the private
company, then the private company shall become a public company on and
from the date on which the aforesaid percentage is so held.
- Where a private company accepts
deposits after the invitation is made by advertisement or renews
deposits from the public (other than from its members or directors or
their relatives), such companies shall become public company on and
from date such acceptance or renewal is first made.
4.Limited and Unlimited companies:
Companies may be
limited or unlimited companies. Company may be limited by shares or
limited by guarantee.
- Company limited by shares In
this case, the liability of members is limited to the amount of
uncalled share capital. No member of company limited by the shares can
be called upon to pay more than the face value of shares or so much of
it as is remaining unpaid. Members have no liability in case of fully
paid up shares.
- Company limited by the guarantee
A company limited by guarantee is a registered company having the
liability of its members limited by its memorandum of association to
such amount as the members may respectively thereby undertake to pay
if necessary on liquidation of the company. The liability of the
members to pay the guaranteed amount arises only when the company has
gone into liquidation and not when it is a going concern. A guarantee
company may be a company with share capital or without share capital.
Unlimited Company: The liability of
members of an unlimited company is unlimited. Therefore their liability is
similar to that of the liability of the partners of a partnership firm.
25 Companies: Under
the Companies Act, 1956, the name of a public limited company must end
with the word 'Limited' and the name of a private limited company must end
with the word 'Private Limited'. However, under Section 25, the Central
Government may allow comapnies to remove the word "Limited / Private
Limited" from the name if the following conditions are satisfied :-
- The company is formed for
promoting commerce, science, art, religion, charity or other socially
- The company does not intend to
pay dividend to its members but apply its profits and other income in
promotion of its objects.
and Subsidiary companies
A company shall be
deemed to be subsidiary of another company if :-
That other company controls the
composition of its board of directors ; or
That other company holds more
than half in face value of its equity share capital
Where the first mentioned
company is subsidiary company of any company which that other's
subsidiary. eg Company B is subsidiary of the Company A and Company C
is subsidiary of Company B, therefore Company C is subsidiary of
The control of the
composition of the Board of Directors of the company means that the
holding company has the power at its discretion to appoint or remove all
or majority of directors of the subsidiary company without consent or
concurrence of any other person.
Means any company
in which not less than 51% of the paid up share capital is held by the
Central Government or any State Government or partly by the Central
Government and partly by the one or more State Governments and includes a
company which is a subsidiary of a government company. Government
Companies are also governed by the provisions of the Companies Act.
However, the Central Government may direct that certain provisions of the
Companies Act shall not apply or shall apply only with such exceptions,
modifications and adaptions as may be specified to such government
Means a company
incorporated in a country outside India under the law of that other
country and has established the place of business in India.
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