Company Formation

» What is a Company

A Company is a voluntary association of people established for a distinct business objective, name, and range of liabilities. A company is a legal entity and a juristic body or person. Hence, a company is empowered to file a suit, and can be represented by a competent authority or person before a Court of law or any other place of justice. However, since a company is not considered as a citizen, it cannot claim any fundamental rights given to citizens. A company is formed and registered under the rules and regulations of The Companies Act, 1956. A Company is a separate legal entity quite distinct from its members and shareholders. There is a distinguished difference between the ownership and the control over the affairs of the company. Members and shareholders are undoubtedly the legitimate owners of the company, but a company is actually managed, directed, and governed, by the directors who are elected unanimously by all the members of the company.

» Characteristics of a Company

Any Company formed and registered according to The Companies Act, 1956 has the following salient features:
• A separate legal entity
• An organized and incorporated body
• An artificial legal body or person
• Limited range of liabilities
• Perpetual succession
• Common seal
• Right to enter into contracts
• Right to sue
• Right to own property
• Flexibility of investment

» Advantages

Following are the outstanding advantages of a Company over other forms of business associations or organizations:
1. A Company is a separate legal entity, independent from the right of ownership of its members from time to time.
2. All members of the company are not empowered to commit any act or omission personally on behalf of the company, as company has an independent legal personality and identity.
3. Since a company is a legitimate legal entity, it can preferably sue, and also be sued in its registered name.
4. A company can own, acquire, sale, or alienate any property in its registered name. No members of the company can ever make any claim over such property, as long as the company is a going concern.
5. A company is bound by law to follow the continuity and perpetual succession. And thus, a company continues to perform it functions despite the changes, retirement, death, or disability of one or more members, in the course of time.
6. Changes in the members’ interest and in the memorandum of the company can be made, without affecting adversely the property, activities, business or existence of the company.
7. Transferability of the company’s shares boosts its liquidity and investment, as long as by doing so, there is no harm to the economic stability of the company.
8. The members and shareholders of the company share the profit equitably in precise proportions by way of dividends, and also the company assets, according to their contributions to the company, in the case of winding up of the company.
9. Greater the number of shareholders, larger the company’s fund, and better growth opportunities.
10. Efficient incorporation of the company, results in better professionalism, ample banking and financial assistance, management, lenient taxation, and well-rounded administration.
11. A registered company can only be dissolved according to the provisions of law.
12. There can be lawful interactions and transactions between the company and any of its members or employees, depending on the arrangements and provisions of the Companies Act.

» Classifcation of Companies

Companies under the Companies Act, 1956 may be classified on various grounds as under:

I. On the basis of business activities undertaken:

Companies

(1) (2) (3) (4) (5) Manufacturing Activities Service Activities Non-Banking Finance Activities Non-profit making (Section-25) Producer (Section 581 A)

II. On the basis of liabilities of the members and directors:

Companies

With Limited liability (1)   With Unlimited Liability (2)

(a) Limited by shares (b) Limited by guarantee and having share capital (c) Limited by Guarantee

III. On the basis of membership pattern/size

Companies

(1) Public (2) Private (3) Government

(a) Unlisted (b) Listed (a) Independent (b) Subsidiary of public company

IV. On the basis of place of registration:

Companies

(1) Indian Company (Incorporated in India)   (2) Foreign Company (Company incorporated outside India but having place of business in India)

V. On the basis of control over the management:

Companies

(1) (Holding Company)   (2) (Subsidiary Company)