Module No.

1:
Introduction to Company Introduction - Meaning and Definition – Features –
Highlights of Companies Act 2013 - - Kinds of Companies – One Person
Company-Private Company-Public Company Company limited by Guarantee-
Company limited by Shares- Holding CompanySubsidiary Company-
Government Company-Associate Company- Small CompanyForeign Company-
Global Company-Body Corporate-Listed Company
COMPANY MEANING
According to Section 2 (20) of the Company Act 2013 "Company means a
company incorporated under this Act or any previous Company Law."

In general, a company is an artificial person, created by law that has a separate

legal entity, perpetual succession, and common seal and has limited liability. It
is a voluntary association of person who together contributes in the capital of
the company to do business.

Generally, the capital of a company is divided into small parts known as shares,
the ownership of which is transferable subject to certain terms and conditions.
Definition
According to Prof. Lindley, company is defined as, “An association
of many persons who contribute money or money‟s worth to a
common stock, and employ it in some common trade or business
(i.e., for a common purpose), and who share the profit or loss (as the
case may be) arising therefore. The common stock so contributed is
denoted in money and it the capital of the company. The persons who
contribute it, or to whom it belongs, are members. The proportion of
capital to which each member is entitled is his share. Shares are
always transferable although the right to transfer them is often more
or less restricted”.
Characteristics/features of Company-

(i) Incorporated Association : A company comes into existence through the

operation of law. Therefore, its incorporation under the Companies Act is must.
Without such registration, no company can come into existence.

(ii) Separate Legal Entity : A company has a separate legal entity, which is not
affected by changes in the ownership. Therefore being a separate entity, a
company can contract, sue and be sued in its corporate name and capacity.
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(iii) Artificial Person: A company is an artificial and juristic person that is
created by law.

(iv) Limited Liability : Every shareholder of a company has limited liability.

His liability is limited to the extent of the unpaid value of the shares held by
him. If such shares are fully paid up, he is subject to no further liability.

(v) Perpetual Existence : The existence of company is not affected by the

death, retirement, and insolvency of its members. That is, the life of a company
remains unaffected by the life and the tenure of its members in the company.
The life of a company is infinite until it is properly wound up as per the
Companies Act.

(vi) Common Seal : The company is not a natural person and has no physical
existence. Hence, it cannot put its signature. Thus, the common seal acts as an
official signature of a company that validates the official documents.
(vii) Management and Ownership : A company is not managed by all
members but by their elected representatives called Directors. Thus,
management and ownership are different.

(viii) Transferability of Shares : Shares of a company are freely transferable,

except in case of private companies. Transfer of shares of private companies is
regulated by Articles of Association.
9. Delegated Management : A joint stock company is an autonomous,
selfgoverning and self-controlling organization. Since it has a large number of
members, all of them cannot take part in the management of the affairs of the
company. Actual control and management is, therefore, delegated by the
shareholders to their elected representatives, know as directors. They look after
the day-to-day working of the company. Moreover, since shareholders, by
majority of votes, decide the general policy of the company, the management of
the company is carried on democratic lines. Majority decision and centralized
management compulsorily bring about unity of action
10. CORPORATE PERSONALITY: A company incorporated under the Act is vested with a
corporate personality so it bears its own name, acts under name, has a seal of its own and its
assets are separate and distinct from those of its members. It is a different „person‟ from the
members who compose it. Therefore it is capable of: owning property, incurring debts, borrowing
money, having a bank account, employing people, entering into contracts and suing or being
sued in the same manner as an individual.

11. COMPANY IS NOT A CITIZEN: The company, though a legal person, is not a citizen under
the Citizenship Act, 1955 or the Constitution of India.

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12.COMPANY IS NOT A CITIZEN: The company, though a legal person, is not a citizen under
the Citizenship Act, 1955 or the Constitution of India.
13.COMPANY HAS NATIONALITY AND RESIDENCE: Though it is established through judicial
decisions that a company cannot be a citizen, yet it has nationality, domicile and residence.

14.TRANSFERABILITY OF SHARES: The capital of a company is divided into parts, called

shares. The shares are said to be movable property and, subject to certain conditions, freely
transferable, so that no shareholder is permanently or necessarily wedded to a company. Section
44 of the Companies Act, 2013 enunciates the principle by providing that the shares held by the
members are movable property and can be transferred from one person to another in the manner
provided by the articles.
15. CAPACITY TO SUE AND BE SUED: A company being a body corporate, can sue and be
sued in its own name.
16 CONTRACTUAL RIGHTS: A company, being a legal entity different from its members, can
enter into contracts for the conduct of the business in its own name.
17` LIMITATION OF ACTION: A company, being a legal entity different from its members, can
enter into contracts for the conduct of the business in its own name.

18 VOLUNTARY ASSOCIATION FOR PROFIT: A company is a voluntary association for profit.

It is formed for the accomplishment of some stated goals and whatsoever profit is gained is
divided among its shareholders or saved for the future expansion of the company.
19`TERMINATION OF EXISTENCE: A company, being an artificial juridical person, does not die
a natural death. It is created by law, carries on its affairs according to law throughout its life and
ultimately is effaced by law. Generally, the existence of a company is terminated by means of
winding up
Companies Act 2013 Highlights
The major highlights of the 2013 Act are given below:

1. The maximum number of shareholders for a private company

is 200 (the previous cap was at 50).
2. The concept of a one-person company.
3. Company Law Appellate Tribunal & Company Law Tribunal
4. CSR made mandatory
5. Salient Features of the Companies Act 2013

6. It has introduced the concept of ‘Dormant Companies’.

Dormant companies are those that have not engaged in
business for two years consecutively.
7. It introduced the National Company Law Tribunal. It is a
quasi-judicial body in India adjudicating issues concerning
companies. It replaced the Company Law Board.
8. It provides for self-regulation concerning disclosures and
transparency rather than having a government-approval-
based regime.
9. Documents have to be maintained 3 in electronic form.
10. Official liquidators have adjudicatory powers for
companies having net assets of up to Rs.1 crore.
11. The procedure for mergers and amalgamations has been
made faster and simpler.
12. Cross-border mergers are allowed by this Act (foreign
company merging with an Indian company and reverse) but
with the permission of the Reserve Bank of India.
13. The concept of a one-person company has been
introduced. This is a new type of private company which may
have only one director and one shareholder. The 1956 Act
required at least two directors and two shareholders for a
private company.
14. Having independent directors has been made a statutory
requirement for public companies.
15. For a prescribed class of companies, women directors
are mandatory.
16. All companies should have at least one director who has
been a resident of India for not less than 182 days in the last
calendar year.
17. The Act provides for entrenchment (applying extra-legal
safeguards) of the articles of association.
18. The Act mandates at least 7 days of notice for calling
board meetings.
19. In this Act, the duties of a Director have been defined. It
has also defined the duties of ‘Key Managerial Personnel’ and
‘Promoter’.
20. For public companies, there should be a rotation of audit
firms and auditors. The Act also prevents auditors from
performing non-audit services to the company. In case of
non-compliance, there is substantial criminal and civil liability
for an auditor.
21. The whole process of rehabilitation and liquidation of
the companies in the case of the financial crisis has been
made time-bound.
22. The Act makes it mandatory for companies to form CSR
committees, and formulate CSR policies. For certain
companies, mandatory disclosures have been made with
regard to CSR.
23. Listed companies ought to have one director to
represent small shareholders 4as well.
 24. There is provision for the search and seizure of
documents, during the investigation, without an order from a
magistrate.
25. Norms have been made stringent for accepting deposits
from the public.
26. The setting up of the National Financial Reporting
Authority (NFRA) has been provided for. It engages in the
establishment and enforcement of accounting and auditing
standards and oversight of the work of auditors. (Due to the
notification of NFRA, India is now eligible for membership in
the International Forum of Independent Audit Regulators
(IFIAR).)
27. The Act bans key managerial personnel and directors
from purchasing call and put options of shares of the
company if such person is reasonably expected to have
access to price-sensitive information.
28. The Act offers more power to shareholders in that it
provides for shareholders’ approval for many major
transactions.

KINDS OF COMPANIES
Joint Stock Companies can be classified on the basis of corporation, nature of
liability, extent of public interest, ownership, nationality etc. let us examine
briefly the different kinds of companies.

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On the Basis of Incorporation
Any company is to be incorporated under an Act. The provision of the particular
Act underwhich it is established governs it working. Companies of this kind are
of three types. Theyare;
Statutory Companies
These are the companies which are created special act of the Parliament or State
Legislature, e.g., the Reserve Bank of India, the State bank of India, the Life
Insurance Corporation, etc. these are mostly concerned with public utilities,
e.g., railways, tramways, electricity companies and enterprise of national
importance.
Registered Companies
Companies which are registered under the Companies Act, 1956, or were
registered underany of the earlier companies Acts are called registered
companies. A vast majority of companies we come across belong to this
category. Tata Motors Limited, Reliance Telecommunication Limited, EID
Parry Limited, etc belong to this category.
Chartered Companies
Companies established as a result of a charter granted by the King or Queen of a
country isknown as chartered companies. The charter issued, governs their
functioning. In other words, TheCrown, in the exercise of the royal prorogated
has power to create a corporation by the grant of acharter to persons assenting to
be incorporated. Example – Bank of England, East India Company,etc.
On the Basis of Liability
On the basis of the extent of liabilities of the shareholders such companies are
divided intothree categories.
Companies Limited by Share
Where the liability of the members of a company is limited to the amount
unpaid on the shares such a company is known as a company limited by shares.
If the shares are fully paid, the liability of the members holding such shares is
nil.
Companies Limited by Guarantee
In a company limited by guarantee the liability of a shareholder is limited to the
amount hehas voluntarily undertake to contribute to meet any deficiency at the
time of its winding up. Sucha company may or may not have a share capital. If
it has a share capital a member‟s liability is limited to the amount remaining
unpaid on his share plus the amount guaranteed by him. This typeof company is
started with the object of promoting science, arts, sports, charity, etc. it is clear
thatits objective is not profit earning. It gets subscription from its members and
donations and endowments from philanthropists.
Unlimited Liability
A company without limited liability is known as an unlimited liability. In case
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of such a company, every member is liable for the debts of the company, as in
an ordinary partnership, is proportion to his interest in the company. In other
words, their liability extends to their private properties also in the event of
winding up. Unlimited companies are almost non- existent.
On the Basis of Nationality
They are of two types‟ viz., domestic companies and foreign companies.
Domestic Company
Companies registered under the Companies Act, 1956, or under earlier Acts are
considereddomestic companies.
Foreign Company
Foreign company means a company incorporated outside India but having a
place of business of India. It has to furnish to the authorities the full address of
the registered or principal office of the company or a list of its directors or
names and addresses of the residents in India authorized to receive notices,
documents, etc.
On the Basis of Number of Members
Private Company
A private company means a company which by its articles
1restricts the rights to transfer its shares
2Limits the number of its members minimum 2 and maximum number of
membersfifty (excluding the employees)
3Prohibits any invitation to the public to subscribe for any shares or
debentures of thecompany. The name of the company must end with the
words „private limited‟.
Public Company
The public is invited to subscribe to the shares of the company usually by
issuing a prospectus. Shares are easily transferable. A public company must
have at least 7 personsto form and no maximum limit as to its number of
shareholders or members. The name must end with the word „limited‟.
On the Basis of Control / Ownership
Holding Company and Subsidiary Company
A company is known as the holding company of another company if it has
control overthat other company. A company becomes a holding company of
another
1. if it can appoint or remove all or majority of the directors of the latter company or
2. if it holds more than 50% of the equity share capital of the latter or
3. if it can exercise more than 50% of the total voting power of the latter.
A company is known as a Subsidiary of another company when control is
exercised by thelatter (called holding company). Over the former called a
subsidiary company. 7
Government Companies
A Government company is one in which not less than 51% of the paid up capital
is held bythe Central Government or by any one or more State Governments or
partly by the Central Governments and partly by one or more State Governments.
Examples: Bharath Heavy ElectricalsLimited, Steel Authority of India Limited,
etc.
A subsidiary of a Government company is also treated as a Government
company. A Government company also enjoys a separate corporate existence.
It should not be identified withthe Government and its employees are not
Government employees.
One man company
These are companies in which one man holds virtually the whole of the share
capital witha few extra members holding the remainder who may be his
relations or nominees.
DISTINCTION BETWEEN PUBLIC COMPANY
AND PRIVATECOMPANY

S. No. PUBLIC COMPANY PRIVATE COMPANY

1. Minimum No. of Members: 7 persons 2 persons
2. Maximum No. of Members: No limits Not more than fifty members
excluding past and present employees
3. Name of the Company: The company „Private Limited‟ must be added at the
name must be ended with „Limited‟. end of the name.
4. Article of Association: Can have its own Prepare own AOA.
Articles or can adopt Table A of the
Companies Act, 1956.
5. Commencement of Business: Shall not Commence business as soon as it is
commence business unless granted the incorporated
certificate of commencement of business
6. Invitation to public: May invite publicto Cannot extend such invitation to the
subscribe to its share/debentures by public
issuing prospectus
7. Transferability of shares: No restrictionon Restrict the right of members to
transfer of shares transfer the shares by its articles
8. Qualification Shares: The directors Need not acquire qualification shares
should acquire the prescribedqualification
shares
9. Quorum: Minimum number of Two number of members should be
members should be present in a meeting present in a meeting
is five
10. Issue of Prospectus: A public limited A private company is prohibited from
company can issue prospectus issuing prospectus

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11. Issue of subsequent shares: Public Rights issue does not arise
company‟s new shares are offered first to
the existing shareholders
12. Issue of share warrants: It can issue A private company cannot issue share
share warrants warrant
13. Number of directors: At least three At least two directors
directors
14. Statutory meetings: Compulsory No such obligations
15. Managerial remuneration: Cannot No such restriction
exceed 11% of the net profit

What is global in a company?

A global company is one that operates in at least one country other than
its home country. Realistically, expanding to one additional country is a
major success for Global Company. “Global” means “all around the
world.” Because of this, a Global corporation would need to do business
globally.
A global company is one that operates in at least one country other
than its home country. Realistically, expanding to one additional country
is a major success for Global Company.

“Global” means “all around the world.” Because of this, a Global

corporation would need to do business globally. In reality, only a few
corporations can claim to do business with every country on the earth. A
“global” corporation has operations in at least one country other than its
home base. Expansion into a new country is a huge task.

To become a global company, one must introduce their products and

their company to the people of the country where they want to expand
their business. Choosing the right country to start in and approaching the
introductions takes a lot of time and effort.In the later part, we will be
discussing global companies.

SMALL COMPANY

The new amended definition of a small company is provided under Section

2(85) of the Companies Act, 2013. The Act defines a small company
as a company that is not a public company and has:

 A paid-up share capital equal to or below Rs.4 crore or such a

higher amount specified not exceeding
9 more than Rs.10 crores.
 A turnover equal to or below Rs.40 crore or such a higher amount
specified not exceeding more than Rs.100 crore.

What is the meaning of associate company?

An associate company, also known as an affiliate company, is a
company in which a notable portion of shares is owned by a parent
company. The portion usually lies between 20% and 50%.
Ownership of higher than 50% of the stock legally turns it into a
subsidiary of the parent company

An associate company is a firm owned in part by a parent company.

Unlike a subsidiary company, the parent will only own a minority or

noncontrolling stake in the associate company.

Associate company relationships often occur with joint ventures.

Firms that possess stakes in associate companies must accurately

report those investments on their consolidated financial statements.

Foreign Company'
Foreign Company' is defined under Section 2(42) of the
Companies Act, 2013, means, any Company or body Corporate
incorporated outside India having a place of business in India
either by itself or through an agent, physically or through electronic
mode or conducts any business activity in India in any other ...
“foreign company” means any company or body corporate
incorporated outside India which,— (a) has a place of business in
India whether by itself or through an agent, physically or through
electronic mode; and. (b) conducts any business activity in India in
any other manner.

What is the definition of body corporate?

an organization such as a company or government that is considered to
have its own legal rights and responsibilities: Although the US parent
company is not a public company, it is a body corporate whose shares
are offered to the public.
Body corporate broadly means a corporate entity which has a legal
existence. The term "body corporate" is defined in Section 2(11) of the
Companies Act, 2013. This includes a private company, public company,
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one personal company, small company, Limited Liability Partnerships,
foreign company etc

What do you mean by a listed company?

Listed companies are public companies whose shares are listed on a recognized stock
exchange for public trading. When a company's security is listed on a recognized stock
exchange the price fluctuation can easily be observed by the investor and he/she can
easily determine the increase/decrease in the value of their investment in a concerned
listed company. A public (publicly traded) company can be listed on
a stock exchange (listed company), which facilitates the trade of
shares, or not (unlisted public company). Those public companies
whose shares are listed and can be traded in a recognised stock exchange
for public trading like, Tata Motors, Reliance, etc are called Listed
Company. These companies are also called Quota Companies. The listing
of securities (shares) helps the investor to determine the increase/decrease
in value of their investment in a concerned listed company. This provides
ample indication to the potential investors about the goodwill of the
company and facilitates them to take various investment decisions and also
to assess the viability of their investment in a company.

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