A company is an association of persons who contribute money or money’s worth to a common stock and use it for a common purpose.  It is a legal person created by law and governed by that particular law. Thus, a company is considered  as legal entity.

A company is a business organization and is an association of individuals or other companies who invest their money in form of capital of the company.

A company has the following characteristics:-

  • It is a voluntary association of persons.
  • It is an legal entity. It can hold, purchase and sell properties in its own name. It can open bank accounts in its own name and can enter in to contracts. It does not affected by coming in or going out of its members.
  • It has a common seal. Though, all the work of a company is done by the natural persons i.e. directors but under the common seal of a company.
  • A company is not affected by change in membership.

Types of Companies

In India following types of companies are available:-

1. Statutory Company:- These companies are formed by the special Act passed by the Central or State legislature. These Companies are not required to frame their Memorandum or Articles of Association not to the word ‘Limited’ as a part of their name. These companies are controlled by Lok Sabha and the accounts are audited by the Comptroller and Auditor General of India.  Life Insurance Corporation of India, Reserve Bank of India, State Bank of India are few examples of statutory companies.

2. Registered Company:- The companies which are registered under Indian Companies Act are called registered companies.

These companies again, are classified as follows:-

A) On the basis of Liability

a) Unlimited Company:- In these type of company, the liabilities the members of the company is unlimited to the creditors of the company. These type of companies are not found in India.

b) Company limited by Shares:- In this case, the liability of a member is only up to the shares held by him. As soon as the full amount of shares is paid by a member, he is free from further liabilities.

B) On the Basis of Number of Members

a) Private Company:- A private company is one which by its Articles of association:-

  • (i) restricts the right of the members to transfers shares.
  • (ii) limits the number of member to fifty excluding past or present employees of the company.
  • (iii) prohibits any invitation to the public to subscribe for its shares or debentures.

Some Important Points in Respect of Private Limited Company:-

  • A private company must have minimum two members.
  • A private company must have minimum two directors.
  • It must add word “Private Limited” as a part of its name unless it has unlimited liability.
  • The accounts of private Limited company must be audited by a practicing chartered accountant  or certified auditors.
  • It must file the copies of audited final accounts with the Registrar of Companies within the prescribed time.
  • It does not require to hold a statutory meeting.
  • It does not require to file a prospectus or a statement in lieu of prospectus.

b) Public Company:- A company which is not a private limited company, is a public company.

Some Important Points in Respect of Public Company:-

  • It must have minimum seven members and the maximum number of member can exceed fifty.
  • It must have minimum three directors
  • Its shares are freely transferable.
  • It must add word “Limited” as a part of its name.
  • The accounts of Limited company must be audited by a practicing chartered accountant  or certified auditors.
  • It must file the copies of audited final accounts with the Registrar of Companies within the prescribed time.
  • It requires to hold a statutory meeting.
  • It requires to file a prospectus or a statement in lieu of prospectus.

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