Definition and kinds of Company


The term “company” is “a group of individuals organized for the purpose of achieving a common goal.” A company is a legally recognized mutual organization of individuals with a distinctive name and common seal, established to do business for profit, with capital divisible into transferable shares, limited liability, a corporate entity, and perpetual succession.

Features of a Company:

Separate Legal Entity

A company is a fictitious individual with a separate legal identity from its owners. It has its own identity and operates as if it is a single legal entity; it has its own seal, and its assets are separate and distinct from those of its members. Its members are their shareholders but they will at the same time they are also creditors since the company has a separate legal entity. Even if a shareholder owns almost the entire equity capital, he cannot be found accountable for the company’s actions. Since the shareholders are not representatives of the company, their actions cannot tie it.

An Artificial Person which is Created by Law

A company is a legal entity that is often referred to as an artificial being. It does not take birth as a normal being but is created by statute. A company, on the other hand, has all the privileges of a normal individual. It has the authority to enter into contracts and to own assets. It has the ability to sue and be sued. However, since it is a fictitious entity, it cannot take oaths, can neither be brought before the court nor be divorced or married.

Common Seal

A company becomes a legal body upon incorporation, with permanent succession and a common seal. The company’s common seal is extremely important. It serves as the company’s official signature. Since the company has no physical shape, it cannot sign a contract using its name. The business name should be inscribed on the shared seal. A paper that does not have the company’s common seal is not genuine and has no legal significance.

Transferability of Shares

A shareholder has the right to transfer his shares to others without the permission of the other shareholders. A company’s Articles of Association allow it to impose some restrictions on the sale of shares, but it cannot completely prohibit it. The transferability of shares of a private corporation may be restricted more strictly.

Kinds of Companies:

On the basis of Incorporation:

 Royal Charter Company

A chartered company is formed by a charter or special sanction issued by the Head of State, which grants a distinct group of people some unique privileges, rights, and powers to conduct commercial operations in designated geographical areas. These rights and freedoms must be exercised, and the powers must be used, in accordance with the provisions of the charter. Such companies include the British East India Company, founded in England in 1600, and the Dutch East India Company, founded in Holland in 1602 to trade with India and the East, as well as the Bank of England (1690). Now, these forms of companies do not exist in India after the country’s independence.

Statutory Company

A statutory company is formed by an Act enacted by the legislature of the nation or state. The powers, obligations, liabilities, objects, scope, and so on of such a corporation are specifically specified by the provisions of the Act that defines it. The Reserve Bank of India (RBI), the Life Insurance Corporation of India Act, and so on are examples of statutory corporations. These companies are usually formed to administer enterprises that are socially or nationally important. Examples of statutory companies in India include the Reserve Bank of India, the Industrial Finance Corporation of India, the Life Insurance Corporation of India, etc.

Registered Company

Companies that are listed under the Companies Act are referred to as registered companies. The Registrar of Companies also issues a certificate of incorporation to companies. The majority of firms in the field of production and services are registered companies. The establishment, operation, and continuation of such a company shall be subject to the applicable Company act provisions.

On the basis of Liability:

 Company Limited by Shares

Section 2(22) of the Companies Act, 2013 mentions these kinds of companies. The owners of such a corporation are liable for the amount of shares that remain outstanding. This liability against the retained shares may be called to the authority’s attention. If a shareholder or participant has paid for the security, he or she is no longer liable for anything else. The responsibility can be applied at any time during the company’s lifetime, even during the course of winding up. A company limited by shares may be a public company or a private company.

Company Limited by Guarantee

Section 2(21) of the Company Act, 2013 mentions these forms of companies. When the liability of a company is covered by the guarantee, that ensures that the members of the company agreed to the Memorandum of Association to reimburse the same amount during the winding up of the company. The members’ liability of such companies is restricted to the undertaking provided by them. Trust research organizations, for example, are examples of businesses whose liability is constrained by promise. Such companies are not founded for the sake of profit, but rather to promote art, technology, athletics, trade, and cultural events. These companies may or may not have a share capital. It can be a public or private company if it has a share capital.

 Unlimited Liability Company

It is a kind of company that is mentioned in Section 2(21) of the Companies Act, 2013. Where the members’ liability is not capped, the company is referred to as an unlimited liability company. A member of such a corporation is liable for the company’s debts in relation to his stake in it. After passing a special resolution for conversion and applying to the Registrar of Companies for enrollment as a limited partnership, such a company may be turned into a limited liability company.

On the basis of Members:

 Private Company

Private companies, as specified in Section 3(1)(b) of the Companies Act, 2013, are rather restrictive in nature, as they can limit the freedom to transfer shares in their Articles of Association. A company of this kind could have a maximum of 50 members. These companies’ shares and debentures are not open to the general public. The number of shareholders required for a company to be deemed a private company is two, and it is explicitly stated that two members collectively owning a single share shall be counted as one shareholder, not two. The ‘Pvt. Ltd.’ at the end of a company’s name makes it possible to identify it as a private company.

Public Company

According to Section 2(71) of the Companies Act of 2013, public companies are those that are not private. A public company must have at least 7 employees, as required by Section 3(1)(a) of the Companies Act, 2013. The right to transfer shares and debentures in a public company to the general public is inherent in the nature of the public company.

On the basis of Domicile:

 Domestic or Indian Company

Indian Company has been defined as any company registered under the Companies Act of 2013 or any other prior law known as Indian Company in accordance with Section 2(20) of the Companies Act, 2013. An Indian company may use its office address to demonstrate its locus standi, while the law includes guidelines for an Indian company to meet while using its forces.

 Foreign Company

A foreign company is described under Section 2 (42) of the Companies Act, 2013 as one that is located outside of India but has a registered address in India, which may be physical or electronic, or one that is owned by the company itself or by its agents, officials, or managers. Giants such as Whirlpool of India Ltd., Timex Group India Ltd., Ambuja Cements Ltd., etc are some of the examples of foreign companies.

On the basis of Control:

 Holding Company

Under Section 2(46) of the Companies Act, 2013, a holding company is defined as a parent company that owns and manages the management and membership of the Board of Directors of another company (i.e. a subsidiary company)

 Subsidiary Company

A subsidiary company is described as one that is owned by another company with more than 51 percent of its overall share capital and is controlled by another company under Section 2 (87) of the Companies Act, 2013.

 Associate company

These Companies, as specified by Section 2(6) of the Companies Act, 2013, are those on which the other company has a considerable impact, but they are not branches of such influencing companies, known as the Associate Company. Examples of such associate companies are Joint Venture Companies.

Major influence can be derived clearly from the clarification added to the clause requiring the influencing company to own 20% of the share capital or other arrangement by which the decision making of the associate is imposed on that Influencing Company.

On the basis of different Aspects:

 One Man Company

A one-man company is one in which one person owns almost all of the company’s share capital and certain dummy names are used to fulfill the legal provision of a minimum number of shareholders. The dummy names that are included are usually family or associates of the primary shareholder. A one-man company is a separate legal body from its owners. In statute, a company is similar to a natural being and has its own legal body. And if he owns all of the shares, the shareholder is not a company. He and no other shareholder of the company have any legitimate or equitable right in the company’s assets.

Not-for-Profit Company

Non-for-profit companies are those that do not generate profits for their members. Any revenue generated or donated to a not-for-profit company is used to further the organization’s goals and keep it going. Not-for-profit organizations are typically tax-funded charities or other forms of the voluntary service company, and as such, they are excluded from paying certain taxes. Money is not assigned to members, directors, or officers of a nonprofit company.

 Investment Company 

Investment Companies, as described in Section 186 of the Companies Act of 2013, are companies that conduct a primary activity or trade involving the shares of other companies. Securities can be in the form of shares, debentures, or other securities issued by the company. The term investment, in its most common sense, means to buy capital and retain it for the purpose of earning interest on it; however, in the case of an investment firm, the purchase is directed not only at acquisition and holding but also at the sale of shares once they hit a higher price. These companies are dependent on the trend in the stock market and analyze the company’s maximum investment gains. The commonly practiced stock market terms related to the bear and bull market and the trend’s interpretation play a key role in achieving company-oriented benefit.