COMPANY – DEFINITION AND ITS FEATURES

Companies Act 1956

A person desirous of running a large business house needs huge amount of money and resources. Generally, a single person is incapable of gathering it all alone, and even if he is capable of doing so, still he prefers others to join him because of the magnitude of risk involved in it. As such he enters into partnership or forms a company. While partnership is suitable for small to mid-size business, for a large size business, company is preferred.

The Companies Act, 1956 provide for the

• Formation of company
• Powers and Responsibilities of Directors and Managers
• Raising of Capital
• Holding meeting
• Company Audit etc.

The Act applies to all the registered company throughout the country. However it does not apply to universities, co-operatives, societies etc.

Definition

A company is a voluntary association of persons formed for the purpose of doing business, having distinct legal identity, a name and limited liabilities.

Following are the features of a company:

1. Separate Legal Identity – A company is a separate legal identity, different from its members or shareholders.
2. Limited liability of members – The liabilities upon the company’s shareholders is limited only to the unpaid amount on the shares bought by them. Thus for a fully paid-up shares, a member cannot be asked to contribute more, even if the company goes for liquidation.
3. Perpetual Existence - A Company has a perpetual existence, irrespective of its shareholders coming and leaving the company till the point of its wound up.
4. Common Seal – A company has its common seal which acts as the signature of the company.
5. Transferable Shares – Shares of the company are transferable in nature. And the transfer of its shares from one person to another does not affect it at all.
6. Separate ownership of the property – Since the company has its own separate legal identity, it can own and dispose property under its own name. Moreover, the property owned by the company can not be the property of its shareholders.
7. Capacity to sue or being sued – Since the company has its own separate legal identity, it can enter into contracts and has capacity to sue or being sued.

Company – Types

Broadly, speaking companies can be divided into 2 types – Private Limited Company and Public Limited Company. The difference between the two is given as follows:

S No	Point of Difference	Private Company	Public Company
1	Minimum paid-up Capital	Rs 1 Lakh	Rs 5 Lakh
2	Members	Minimum – 2 Maximum – 50	Minimum – 7 Maximum – Unlimited
3	Minimum number of Directors	2	3
4	Mode of raising capital	Private Arrangement	Private Arrangement Public Subscription
5	Nature of shares	Not Transferable, unless otherwise mentioned  in Articles	Completely Transferable
6	Restriction on Managerial Remuneration	No	Yes
7	Suffix with the Company’s name	Private Limited	Public Limited or Limited

Conversion of Private Company to public Company:

1)      Conversion by default – The Company Law imposes various restrictions upon a Private company (For example – It can’t raise capital through Pubic Subscription). However, if the company fails to comply any of these restrictions, it automatically qualifies for Public Limited Company.

2)      Conversion by choice – A Private Company may convert itself into a Public company by choice. This is done by passing a ‘special resolution’ leading to alteration in its ‘Article of association’ (According to a Public company).

A prospectus is also needed to file with the Registrar of the company within 30 days of passing the resolution

Conversion of Public Company into a Private Company:

1)      Conversion by choice – A Public Company may convert itself into a Private company by choice. This is done by passing a ‘special resolution’ leading to alteration in its ‘Article of association’ (According to a Private company).

A copy of such resolution is also needed to file with the Registrar of the company within 30 days of passing the resolution.

The company also needs to get approval from the Central government for the conversion.