If you’re considering establishing a company in India, our team at White and Right can provide expert guidance through the entire company registration process.
We all intuitively grasp what a company is – a group of individuals uniting to achieve a shared objective, typically profit generation. However, the legal definition of a company carries specific weight and implications. This article delves into the definition of a company as recognized by law, exploring its key characteristics and the various types of companies.
What is a Company?
A company, in legal terms, is a distinct entity formed by individuals to conduct business or trade with the aim of making profits or fulfilling particular goals. Crucially, companies exist as separate legal entities, meaning they are legally distinct from their owners and managers. This concept underpins modern commerce, providing a framework for businesses to operate, expand, and adhere to legal requirements. This article will examine the legal meaning of a company, its fundamental characteristics, and the different categories of companies recognized under Indian law, specifically the Companies Act 2013.
Meaning and Definition of a Company in Law
The term “company” originates from the Latin words ‘com’ (together) and ‘panis’ (bread), symbolizing individuals uniting for a common purpose. Legally, it denotes a corporate body recognized by law, possessing the capacity to enter into contracts, own property, and conduct business activities in its own name.
According to Section 2(20) of the Companies Act, 2013: “A company means a company incorporated under this Act or under any previous company law.”
Definitions by Legal Experts:
- Justice James: “A company is an association of persons united for a common object.”
- Prof. Haney: “A company is an artificial person created by law, having a separate legal entity with perpetual succession and a common seal.”
- Lord Lindley: “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for some common purpose. The common stock so contributed is denoted in money and is the capital of the company.”
Characteristics of a Company under Law
The legal definition of a company encompasses several unique characteristics that distinguish it from other business structures such as sole proprietorships or partnerships. The primary legal characteristics of a company include:
- Artificial Legal Person: A company is a legal entity created by law, possessing the rights and responsibilities of a natural person, such as entering into contracts, owning assets, and engaging in legal proceedings. However, it operates through its Board of Directors as it lacks physical form.
- Separate Legal Entity: A company possesses a legal identity distinct from its members. This separation ensures that the company’s assets and liabilities are separate from those of its shareholders. The principle of separate legal personality was established in the landmark Salomon case, safeguarding shareholders from personal liability for the company’s debts.
- Limited Liability: The financial responsibility of a company’s shareholders is typically limited to the unpaid value of their shares. This protects the personal assets of shareholders even if the company encounters financial difficulties.
- Perpetual Succession: The existence of a company is not dependent on the death, insolvency, or retirement of its members. It continues to exist until it is legally dissolved through formal winding-up procedures.
- Transferability of Shares: In a public company, shares can generally be freely transferred, providing liquidity for investors. Private companies, however, may impose restrictions on share transfers within their Articles of Association.
- Common Seal (Optional): While no longer mandatory under the Companies Act 2013, many companies still utilize a common seal as their official signature to validate documents.
- Representative Management: The shareholders elect a Board of Directors to manage the company’s affairs. This structure aims for professional and efficient management, with directors overseeing day-to-day operations.
- Voluntary Association for Profit: A company is formed voluntarily by individuals or entities with the primary intention of conducting business for profit. These profits are then distributed among shareholders as dividends.
Types of Companies under the Companies Act 2013
The Companies Act 2013 categorizes companies based on various factors to accommodate diverse business needs:
- On the Basis of Incorporation:
- Chartered Companies: Formed by royal charters (no longer prevalent in India).
- Statutory Companies: Established by an Act of Parliament or a state legislature for specific public purposes (e.g., Reserve Bank of India).
- Registered Companies: Formed under the Companies Act 2013, representing the most common type of business entity in India.
- On the Basis of Liability:
- Companies Limited by Shares: Shareholders’ liability is capped at the unpaid amount on their shares.
- Companies Limited by Guarantee: Members commit to contribute a specific amount if the company is wound up.
- Unlimited Liability Companies: Members are personally liable for the company’s debts without limit.
- On the Basis of Number of Members:
- Private Company: Limited to a maximum of 200 members and prohibited from inviting public subscription of shares. Its name must include “Private Limited.”
- Public Company: No limit on the number of members and allowed to raise funds by issuing shares to the public.
- On the Basis of Control:
- Holding Company: Controls the majority of another company’s Board of Directors or share capital.
- Subsidiary Company: Controlled by a holding company.
- On the Basis of Ownership:
- Government Company: 51% or more of its share capital is held by the government.
- Non-Government Company: Owned and operated by private individuals or entities.
- Foreign Company: Registered outside India but operating within India.
- One-Person Company (OPC): Introduced under the Companies Act 2013, allowing a single individual to form a company with limited liability and simplified management.
Why Form a Company? Benefits of Incorporation
Establishing a company offers numerous advantages for businesses, including:
- Limited Liability Protection: Safeguards the personal assets of shareholders from business debts.
- Separate Legal Identity: Enables the company to operate independently of its owners.
- Perpetual Succession: Ensures business continuity despite changes in ownership.
- Ease of Raising Capital: Facilitates access to funds through the issuance of shares.
- Tax Benefits: Certain company structures may qualify for lower tax rates and other incentives.
How to Start a Company in India – A Step-by-Step Guide
Starting a company in India involves careful planning and adherence to legal procedures under the Companies Act 2013. Whether you aim for a private limited company, a public limited company, or an LLP, following these steps ensures a smooth registration process:
- Choose the Right Business Structure: Select the legal structure that best suits your business goals (Private Limited Company, Public Limited Company, Limited Liability Partnership (LLP), One-Person Company (OPC)).
- Reserve a Company Name on the MCA Portal: Use the RUN (Reserve Unique Name) application on the Ministry of Corporate Affairs (MCA) portal to check name availability and reserve a unique name that complies with the Companies Act, 2013 rules. You can propose up to two names.
- Obtain a Digital Signature Certificate (DSC): All company documents require digital signatures from proposed directors and shareholders.
- Apply for Director Identification Number (DIN): Every director must obtain a DIN from the MCA.
- Prepare Documents for Company Registration: Gather essential documents including the Memorandum of Association (MOA), Articles of Association (AOA), proof of registered office address, and identity and address proofs of directors and shareholders.
- File the SPICe+ Form on the MCA Portal: The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form on the MCA portal integrates various services, including company registration, PAN/TAN allotment, and GST registration. Fill the form online, attach required documents (MOA, AOA, etc.), pay the fees, and submit.
- Obtain PAN, TAN, and GST Registration: Apply for the company’s Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and Goods and Services Tax (GST) registration (if applicable).
- Receive Certificate of Incorporation: Upon successful verification by the MCA, the company will receive a Certificate of Incorporation (COI) containing the Corporate Identity Number (CIN), official name approval, and legal recognition to commence business.
- Open a Company Bank Account: With the COI, PAN, and TAN, open a bank account in the company’s name for all financial transactions.
- Comply with Post-Incorporation Formalities: Fulfill post-registration requirements such as holding the first Board Meeting within 30 days, issuing share certificates, maintaining statutory registers, filing annual returns and financial statements with the MCA, and obtaining professional tax registration (if applicable).
How White and Right Helps You Register a Company in India
At White and Right, we provide expert assistance in registering all types of companies under the Companies Act, 2013. Our comprehensive services include:
- Business Consultation: Guiding you to choose the optimal business structure.
- Document Preparation: Assisting with the drafting and filing of the MOA and AOA with the Registrar of Companies.
- Tax Registrations: Facilitating your GST, PAN, and TAN registrations.
- Post-Incorporation Compliance: Helping with annual filings, compliance reports, and tax submissions.
Conclusion
The legal definition of a company provides a crucial framework for understanding its structure, purpose, and operations. The Companies Act, 2013 recognizes companies as distinct legal entities with specific rights and obligations. Key characteristics like limited liability, perpetual succession, and representative management make companies a favorable structure for businesses seeking growth and stability. Understanding the different types and characteristics of companies empowers businesses to choose the most suitable structure for their operational needs and ensure compliance with Indian law.
At White and Right, we are ready to support you at every stage of the company registration process. Allow us to assist you in selecting the right structure and registering your company seamlessly, ensuring adherence to the Companies Act, 2013, and other relevant regulations. Contact White and Right today for expert guidance and embark on your business journey with confidence!