INTRODUCTION

The word “Company‟ has no technical or legal meaning. Section 2 (20) of the 2013 Act defines the
term “company” to mean “a company incorporated under the Companies Act 2013 or any previous
company law.
In the common law a company is a “Legal Person‟ or “Legal Entity‟ which is separate from and
capable of surviving beyond the lives of members. Just like a juristic person a company is an entity
different from its members, having its rights and duties and having a perpetual succession.

So, Corporate Personality is one of the characteristics of the company under which company is said
to be a legal or artificial person. The concept of corporate personality further says that a company is
having a separate legal entity which is different from its members. The concept of Corporate
Personality was ruled out in the famous case of Solomon v. Solomon whereby it was enunciated that a
company is having a separate legal entity as distinct from its members.

CHARACTERISTICS OF COMPANY-

1. Separate Legal Entity- A company has a distinct legal entity and is independent of its members.
The creditors of the company can recover their money only from the company and the property of the
company. They cannot sue individual members. So, the company is not liable for the individual debts
of its members in any way. The property of the company is to be used for the benefit of the company
and not for the personal benefit of the shareholders. This means that company is a having independent
existence and is vested with a corporate personality which is distinct from the members who compose
it.

2. Limited Liability - A company being a separate person is the owner of the assets and bound by its
liabilities. A company may be a company limited by shares or a company limited by guarantee. In
company limited by shares, the liability of members is limited to the unpaid value of the shares.

3. Artificial legal person- A company is an artificial person. Negatively speaking, it is not a natural
person. So, a company cannot act on its own and, it exists in the eyes of the law. It has to act through
a board of directors elected by shareholders.

4. Perpetual succession- A company is a stable form of business organization. Its life does not depend
upon the death, insolvency or retirement of any or all shareholders or directors. The law creates it and
law alone can dissolve it. Members may come and go, but the company can go on forever.

5. Common Seal- A company being an artificial person is similar to natural person and as such it
cannot sign documents for itself. It acts through natural person who are called its directors. But having
a legal personality, (8) it can be bound by only those documents which bear its signature. Therefore,
the law has provided for the use of the common seal, with the name of the company engraved on it, as
a substitute for its signature. Any document bearing the common seal of the company will be legally
binding on the company. These were a few characteristics of a corporation.
TYPES OF COMPANIES-
Companies can be classified on the basis of-
(A) Incorporation-
 Chartered Company- The Company which have formed and incorporated under a special
charter granted by the king or queen. Ex- Bank of Japan

 Statutory Company- These are companies which are created by means of a special Act
parliament or any state legislature. Ex- RBI, Railway.

 Registered Company- Company formed and registered under companies Act 1956 is called
Registered Companies.

(B) Liability of members-

 Limited Company- Majority of registered companies will be company limited by

shares. In case of limited companies’ liability of members will be limited to the
amount unpaid on shares. For example, a shareholder who has paid 75 on a share of
face value 100 can be called upon to pay the balance of 25 only. Companies limited by
shares are by far the most common and may be either public or private.

 Company limited by guarantee- In this liability of each member is limited by the

memorandum to such amount as he may guarantee by the memorandum to contribute
to the assets of the company in the event of its winding up.

Such companies are formed for the promotion of art, science, culture, sports etc.

 Unlimited Company- A Company not having any limit on the liability of its members
is termed as unlimited company. The members are liable for the debts of the company
at the winding up. Also, the personal assets of the members are at stake in unlimited
companies. Such companies may or may not have share capital. They may be either a
public company or a private company.

(C) Number of members-

 PUBLIC COMPANY-

1. Defined u/s 2(71) of the CA, 2013 – A public company means a company which
is not a private company.
2. Section 3(1) of the CA, 2013– Public company may be formed for any lawful
purpose by 7 or more persons.
3. Section 149(1) of the CA, 2013 – Every public company shall have minimum 3
director in its Board.
4. Section 4(1)(a) of the CA, 2013 – A public company is required to add the
words “Limited” at the end of its name.
 It is the essence of a public company that its shares and debentures can be transferable
freely to the public unlike private company. Only the shares of a public company are
capable of being dealt in on a stock exchange.

A private company that is a subsidiary of a public company, will be considered a

public company.

 PRIVATE COMPANY-

1. Defined u/s 2(68) of the CA, 2013 –

A private company means a company which by its articles—
a. Restricts the right to transfer its shares;
b. Limits the number of its members to 200 hundred (except in case of OPC)
Note:

1. Persons who are in the employment of the company; and persons who, having been
formerly in the employment of the company, were members of the company while in
that employment and have continued to be members after the employment ceased,
shall be excluded.
2. Where 2 or more persons hold 1 or more shares in a company jointly they shall be
treated as a single member.

 Prohibits any invitation to the public to subscribe for any securities of the company;
 Section 3(1) of the CA, 2013 – Private Company may be formed for any lawful
purpose by 2 or more persons.
 Section 149(1) of the CA, 2013 – Every Private company shall have minimum 2
director in its Board.
 Section 4(1)(a) of the CA, 2013 – A private company is required to add the
words “Private Ltd” at the end of its name.
 Special privileges – Private Companies enjoys several privileges and exemptions
under the Companies Act.

(D) Ownership-
1. Government Company- A company is said to be Government Company when 51% of the
paid-p capital is held by the government or by any state government or partly by central
government or partly by one or more state government.
2. Foreign Company- A foreign company is a company incorporated outside India and having
a place of business in India.
3. Holding and subsidiary company- A company which controls another company is known
as the holding company and the so controlled company is known as subsidiary company.
DIFFERENCE BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY

BASIS PUBLIC COMPANY PRIVATE COMPANY

Meaning A public company is a company A private company is a

which is owned and traded publicly company which is owned and
traded privately.

Minimum members 7 2

Maximum members Unlimited 200

Minimum Directors 3 2

Suffix Limited Private Limited

Start of business After receiving certificate of After receiving certificate of

incorporation and certificate of incorporation.
commencement of business.

Statutory Meeting Compulsory Optional

Issue of prospectus / Obligatory Not required

Statement in lieu of
prospectus

Public subscription Allowed Not allowed

Quorum at AGM 5 members must present in person. 2 members must present in

person.

Transfer of shares Free Restricted