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Company - Meaning

Practically the most credible form of business, a company is registered in accordance with the Companies Act and is a separate legal entity, distinct from both its shareholders, directors and managers. The liability of the shareholders is limited to the amount paid or unpaid on issued share capital. A company has unlimited life and no limit is placed on the number of shareholders. The Companies Act, 1956 does, however, place many restrictions on the company. It must maintain certain books of accounts, appoint an auditor and file an annual return with the registrar of companies which includes the accounts as well as details of directors and mortgages.

Types of Companies

There are three types of companies keeping in view their nature, which is outlined below:

1. Companies with Limited Liability
2. Companies with Unlimited Lliability
3. Company limited by Guarantees

The aforesaid companies are further classified into the following:

1. Public Limited Company
2. Private Limited Company

For some specific business purposes, Public & Private Companies takes the form of the following:

1. Producer Company
2. Non Banking Financial Company
3. Non Profit Associations

Company with Limited Liability

Companies, where the liability of its members is limited to the extent of amount unpaid on the shares, held by them in the Company. For e.g. A has purchased 10 shares of Rs 10/each and therefore his total liability towards the company is limited only upto Rs 1000. Generally, more than 90% of the companies are incorporated with limited liability.

Company with unlimited Liability

Company with unlimited liability is just like partnerships, where the liability of partners is unlimited and may extend to their personal assets. In case of such companies, the liability of its member is unlimited for the purpose of all the liabilities. This type of company is generally, not popular form of business organization.

Company limited by Guarantees Company

where liability of its members is limited to the amount , which he had agreed at the time of incorporation to pay on wounding up of the Company. Under this type of company, generally no amount is put in by the members at the time of incorporation and they agree to pay the same at the time of wounding up of the affairs of the Company.

Public Limited Company

Public Limited Company means a Company which is not a private limited Company and has a minimum Authorized Capital of Rs 5 Lakhs. It does not carry the word `private’ in its name and also do not have the restrictions as carried out in the private limited companies. A Private Company which is subsidiary of Public Company also functions as Public Companies.

Basic Features are as follows:

• Minimum Authorized Capital of Rs. 5 Lakhs
• No restriction on number of members
• Shares are easily transferable.
• Can access Public in case of need of funds

Advantages:

• Better Governed due to large number of compliances
• No limit to Memberships
• More financing options in form of Public Issue or Deposits
• Better Creditworthiness

Disadvantages:

• Number of legal Compliances are too large
• Approvals of Government for large number of purposes
• Restrictions on payment of salaries and loans to Directors
• Not suitable for closely held business.

Private Limited Company

Private Limited Company means a Company formed with the word ‘private’ in its name and the Articles of Association of whom contains the following restrictions

• Restricts the right to transfer its shares
• Limitation to the number of shareholders to 50 (excluding employees and former employees)
• Prohibition towards invitation to the public to subscribe to shares and debentures
• Prohibits acceptance of deposits from persons other than shareholders, directors and their relatives.
• The minimum paid up capital for a private Company would be Rs. 100,000.

Advantages:

• Suitable for closely held groups
• Less Legal Formalities
• Less Government Intervention
• Better Creditworthiness

Disadvantages:

• Limited financing avenues i.e. no public offer or acceptance of deposits
• Limited Membership

Private Companies are also relieved from complying a large number of provisions of the Companies Act, click here to see the same.

Producer Company

The Companies has prescribed separate set of provisions for companies which are engaged in activities related to agriculture and all companies registered as per these provisions are called as Producer Company. Producer Company can engage in any of the following activities:

• Production, harvesting, procurement, pooling handling, marketing, selling, export and import of primary produce of the Members and services for their benefit,
• Processing including reserving, drying, distilling, brewing etc of produce of its members
• Rendering technical services, consultancy services, training, research and development and promotion of interest of its Members,
• Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communication relatable to primary produce,
• Insurance of producers or their primary produce
• Promoting techniques of mutual assistance
• Distilling packaging of produce of its Members
• Activities ancillary or incidental to any of the above activites

Any ten or more individuals, each of them being a producer or any two or more producer institutions, or a combination of ten or more individuals and producer institutions may form a Producer Company

Producer means a person engaged in any of the activity connected with the following:

• Produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisiculture, viticulture, forestry, forest products, re-vegetation, bee raising, farming planation product)
• Person engaged in handloom, handicraft and other cottage industries
• By product arising from above activities
• By product arising from any activity which is ancillary to the above activity

Producer Institution means a Producer company or any other institution having only producer or producers or producer company (s) as its member whether incorporated or not and have the objects of producer company and which agrees to make use of services provided in articles of Producer Company

Non Banking Financial Company

Following types of companies are called as Non Banking Financial Companies and are regulated as per the regulations prescribed under Non Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998:

• Company which is financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment, moving on won power and general purpose industrial machines.
• Company which is financial institution carrying on as its principal business the providing if finance whether by making loans or advances or otherwise for any activity other than its own.
• Company which is a financial institution carrying on as its principal business the acquisition of securities.

Non Profit Association

Under the Companies Act , 1956 you can also register a company for carrying on business , not for the purpose of earning profit but to serve mankind at large. Such type of company is generally called as Association not for profit or section 25 Company.

Association not for profit or section 25 company can only be formed for the purpose with the following objectives

• For promoting commerce, art, science, religion, charity or any other useful objects ; and
• The Company prohibits payment of any dividend to its members but intends to apply its profit and other income in promotion of its objects

It is necessary to take the approval of Government of India, to form such type of company

Due to their nature of business, the Government of India has relaxed the application of various provisions of the Companies Act on such companies,

To check the same.

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