Unit 1

INTRODUCTION TO COMPANY

INTRODUCTION
The word ‘company’ is derived from the Latin word ‘Com’ which means ‘Together’ and the word ‘panies’ which
means ‘bread’. A company is thus an association of persons who take their meal together.
In simple language, the term company means an association of persons formed for some common purpose.When
a few persons form a company for some business of profit it is called Joint Stock Company.
Meaning of the term company - A joint stock company is an artificial person created by law having a separate
legal entity with a perpetual succession and common seal..
Definition- “A company is an association of many persons who contribute money or money worth to a common
stock and employ it in some trade or business, and who share the profit and loss (as the case may be) arising
therefrom.”
According to Section 2(20) of the Companies Act, 2013, a company means a company incorporated under
this Act or under any previous company law.
FEATURES OF A COMPANY
• Creation by Law: A company is registered under the Companies Act and comes into existence
only after registration.

• Artificial Person: A company is an artificial person created by law with certain rights and
obligations.

• Separate Legal Entity: A company is a separate legal entity from its members and can own
property, incur debts, sue, and be sued in its own name.

• Limited Liability: Members' liability is limited to the amount unpaid on their shares.

• Perpetual Succession: A company has continuous existence despite changes in membership.

• Common Seal: A company has an official signature (common seal) for its official documents
(optional since 2015).

• Transferability of Shares: Shares are freely transferable (subject to restrictions in private

companies).

• Capacity to Sue and Be Sued: A company can initiate legal proceedings and be sued in its own
name.

• Separate Property: The company owns its property in its own name, and members have no
direct claim over it.

• Corporate Veil: The company is shielded by a 'corporate veil' separating its actions from those
of its shareholders.

• Transferability of Shares: Shares are easily transferred, making joint stock companies popular
(freely transferable in public companies).
FEATURES OF THE COMPANIES ACT, 2013

• Simplified Incorporation Process: Streamlines incorporation with online registration, reducing

paperwork and enabling a faster process.

• One Person Company (OPC): Introduces OPC, allowing a single individual to incorporate a
company with limited liability.

• Small Companies: Relaxed compliance requirements for small companies, making it easier for
them to operate and comply.

• Dormant Companies: Allows companies to maintain a dormant status with minimal compliance.

• Corporate Social Responsibility (CSR): Compulsory CSR spending for companies meeting
certain criteria.

• Independent Directors: Strengthens corporate governance by mandating independent directors

in certain companies.

• Women Directors: Requires at least one woman director in certain companies, promoting gender
diversity.

• Audit Committee: Mandates the formation of an Audit Committee with a majority of

independent directors and financial expertise.

• Whistle Blower Policy: Requires companies to implement a whistleblower policy to encourage

reporting of unethical behavior.

• Class Action Suits: Allows shareholders and depositors to file class action suits against
companies for violations.

• Fast Track Mergers: Provides a simplified and faster merger process for certain companies.

• National Company Law Tribunal (NCLT): Establishes NCLT as a dedicated tribunal for
resolving corporate disputes.

• Companies Fresh Start Scheme: Introduces schemes like the Companies Fresh Start Scheme to
rectify past compliance defaults.

• Decriminalization: Reduces criminal liabilities for certain offenses by companies and their
officers.

• E-Governance: Emphasizes the use of technology for compliance and governance.

• Enhanced Corporate Governance: Enhances corporate governance by requiring the formation

of committees like the Nomination and Remuneration Committee.

• Auditor Independence: Strengthens auditor independence by introducing audit rotation and

restricting non-audit services.

• Insolvency and Bankruptcy Code (IBC) Introduction: Facilitates a streamlined process for
insolvency and winding up.
 • Greater Transparency: Imposes stricter disclosure requirements to ensure transparency in
financial reporting and decision-making processes.

Kinds of companies
1. Companies based on incorporation:

• Chartered Company
- Incorporated under a special charter granted by the monarch (does not exist in India)
- Example: East India Company, Chartered Bank of Australia

• Statutory Company
- Created by a special act of the legislature
- Governed by the provisions of such an act
- Examples: State Bank of India, Reserve Bank of India, LIC

• Registered Company
- Brought into existence by registration with Registrar of Companies under the Companies
Act
- Incorporated under the Companies Act
- Examples: Most companies in India, such as private and public limited companies

2. Companies based on the number of members:

• Public Company
- Minimum of 7 members (no maximum limit)
- Can raise capital from the public
- Must have "Limited" in its name
- Example: Reliance Industries, Tata Motors

• Private Company
- Minimum of 2 members (maximum of 50)
- Cannot raise capital from the public
- Must have "Private Limited" in its name
- Example: Small and medium-sized enterprises, startups

• One Person Company (OPC)

- Only 1 member (can have up to 50 members)
- Limited liability
- Must have "OPC" in its name
- Example: Solo entrepreneurs, small businesses

3. companies based on liability:

• Company Limited by Guarantee

- Liability: Limited to the amount members guarantee to contribute in the event of winding
up. (typically a nominal amount)
- Features:
- No share capital
- Non-profit objective
- Governed by Articles of Association
- No dividends (profits are reinvested)
- Examples: Charitable organizations, non-profit organizations
 • Company Limited by Shares

- Liability: Limited to the amount unpaid on shares

- Features:
- Share capital
- Transferability of shares
- Profit distribution (dividends)
- Includes private and public companies
- Examples: Most businesses, including private and public companies

• Unlimited Liability Company

- Liability: Members are liable to an unlimited extent in the event of winding up

- Features:
- Rarely found
- Found in certain countries (UK, Ireland, Hong Kong, Pakistan, etc.)
- Members' personal assets are at risk

4. Companies based on nationality:

• Foreign Company

- Incorporated in a foreign country

- Has a place of business in India (physically or electronically)
- Conducts business activities in India
- Not registered in India, but some provisions of the Companies Act 2013 apply
- Example: A US-based company with a branch office in India

• Domestic Company

- Incorporated in India
- Registered in India under the Companies Act 2013
- Can conduct business activities in India and abroad
- Subject to all provisions of the Companies Act 2013
- Example: An Indian company like Tata Motors or Reliance Industries

5. Companies based on listing:

• Listed Company

- Listed on a recognized stock exchange (e.g. BSE, NSE)

- Shares are publicly traded
- Subject to strict regulations and disclosure requirements
- Examples: Reliance Industries, Tata Motors, Infosys

• Unlisted Company (Private Company)

- Not listed on any stock exchange

- Shares are not publicly traded
- Less stringent regulations and disclosure requirements
Examples: Small and medium-sized enterprises, startups, family businesses
6. Companies based on control and ownership structure:

• Holding Company:

- A company that has control over another company (subsidiary)

- Holds a majority of the subsidiary's shares(more than 50 % ) or
- Has the power to appoint directors and influence decision-making
- Examples: Parent companies, conglomerates

• Subsidiary Company:

- A company that is controlled by another company (holding company)

- Has a majority of shares held by the holding company
- Is subject to the control and influence of the holding company
- Examples: Subsidiaries of multinational corporations, group companies

• Associate Company:

- A company that has a significant influence over another company (but not control)
- Holds a significant minority of shares (typically 20-50%)
- Has representation on the board of directors
- Examples: Joint ventures, strategic partners, associated companies

• Wholly Owned Subsidiary:

- A subsidiary company that is 100% owned by the holding company

- Has no other shareholders
- Is fully controlled by the holding company
- Examples: Fully owned subsidiaries of multinational corporations

7. Based on the level of government control and ownership.

• Government Company:

- A company that is owned and controlled by the government

- At least 51% of the company's shares are held by the government
- The government has control over the company's operations and decision-making
- Examples: Public Sector Undertakings (PSUs), government-owned corporations, state-
owned enterprises

• Non-Government Company (Private Company):

- A company that is not owned or controlled by the government

- Less than 51% of the company's shares are held by the government
- The company is owned and controlled by private individuals, groups, or other entities
- Examples: Private limited companies, public limited companies, multinational
corporations

8. Other classifications

• Dormant Company:

- A company that has no significant accounting transactions during a financial year

 - A company that has not commenced business or has ceased to operate
- A company that is not required to file financial statements or annual returns
- Examples: Shell companies or companies with no business activity

• Small Company:

- A company that meets certain criteria related to:

- Paid-up capital should not exceed INR 4 crores
- Turnover not exceed 40 crore
- A company that is not a public company or a subsidiary of a public company
- Examples: Small and medium-sized enterprises (SMEs), startups, family businesses

Body Corporate and Corporate Body

Body Corporate
• A legal entity incorporated or registered under company law.
• Includes corporations, companies, and associations.
• Has a distinct identity separate from its members.

Examples of body corporate

o Companies: Public and private.
o Corporations: Entities incorporated under company law.
o Associations: Registered under relevant laws.
o Societies: Non-profit organizations with separate legal status.

Corporate Body
 • A broader term for any legal entity with a separate identity from its
owners or members.
▪ Includes both incorporated and unincorporated entities

Examples of Corporate Bodies

o Incorporated Entities: Companies, associations.
o Unincorporated Entities: Partnerships, clubs.
o Other Legal Entities: Cooperatives, trusts.
All Bodies Corporate are Corporate Bodies, but not all Corporate Bodies are Bodies Corporate.

The key difference is that "Body Corporate" typically refers to entities incorporated or
registered under company law, whereas "Corporate Body" is a broader term that includes both
incorporated and unincorporated entities with a separate legal identity.

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ALL THE BEST!!!