Meaning of a Company: A Company is an artificial entity created by a law which is distinct from it’s members and has the ability to carry a business in it’s own name. A Company can sue and can be sued, can borrow money, can open a bank account, has a common seal etc. Since it’s created by an act of law, it can only be dissolved by law. It has perpetual succession, independent of it’s members. Members can come and and go but a company remains.
Kinds of a Company:
Classification of companies can be made on the basis of –
- the liability of its members or
- the number of members.
Kinds of a Companies on the basis of liability of members:-
- Companies Limited by Shares
- Companies Limited by Guarantee
- Unlimited Companies
1. Companies Limited by Shares: As is clear from the name itself, in this form of company the liability of members is restricted/limited to the extent of the nominal value of shares held by them. Thus, any member is not required to pay any amount from his personal estate.
2. Companies Limited by Guarantee: In such a company, the members liability is limited to the amount of contribution they decide to make in the event of liquidation of the company.
3. Unlimited Companies: The liability of members has no limit in this kind of company. They are exposed to unlimited liability and therefore their private property may also need to be used to settle the company’s liabilities.
Companies according to the number of members
- Public Company
- Private Company
- One person Company
1. Public Company:
According to Companies Act, 2013 “public company” means a company
- which is not a private company;
- has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed by its Articles
- Has 7 as minimum number of members
A public Company is the one which has no restriction on maximum number of members and the ownership of shares of these companies can be easily transferred.
A Public Company should have atleast 3 Number of Directors to manage its affairs. A public Company can issue prospectus and can invite general public to issue to its shares and raise money.
It uses the term Limited in its name. Eg Asian Paints Limited, Havells Limited and so on.
2. Private Company:
According to Companies Act 2013, “private company” means a company
Has a minimum paid up share capital of one lakh rupees or such higher paid- up capital, as may be prescribed by its Articles
Has minimum of 2 members and according to new Companies Act maximum of 200 members(earlier it was 50)
Has a restriction on transfer of its shares.
A private company must have atleast 2 directors to supervise the affairs of the company. Since it’s a private company, it can not issue public shares for raising money. In case of a private company, there is a restriction on transfer of shares. And they use the term Private in its name. Eg Flipkart, Zoom Car are some example of privately owned Companies in India.
3. One Person Company:
The Companies Act, 2013 introduces various concepts for the first time, One Person Company being one of them.
Section 2(62) of the Companies Act, 2013 defines One Person Company as a company which has only one person as its members.
The paid up capital in this case can not exceed more than 50 lakhs and its annual average turnover can not exceed 2 crores.
One Person Company can only be registered as Private Company, which means all the rules applicable to Private Company will apply to One Person Company too.
There is a distinction between One Person Company and Sole Proprietorship. In One Person Company, there exists a separate legal entity which doesn’t exist in Sole Proprietorship.
Furthermore, in case of One Person Company the taxation rate it also steep. The liability of the shareholder is limited in case of One Person Company. In case of Sole Proprietorship, the taxation is not that steep and since, there exists no distinction between owner and business, therefore the liability is not limited.
Chapter 1 – Accounting for Share Capital