Introduction
In today’s time, trade and business play a crucial role in a country’s progress. For running business activities smoothly, a proper structure or system is necessary. One of the most popular and widely used forms of business organization is the company. A company is not just a group of people working together—it is a legal entity that has its own rights and existence, separate from the individuals who form it. Unlike a partnership or sole proprietorship, a company continues to exist even if its members change. This article explains what a company is, its main features, and the different types of companies recognized by law.
Meaning of a Company
The word company comes from the Latin terms com (together) and panis (bread), which originally meant people sharing bread. In the modern sense, a company is an association of people who come together to do business and earn profit. According to the Companies Act, 2013, Section 2(20), a company means “a company incorporated under this Act or under any previous company law.” Simply put, a company is a legal person created by law. It can own property, enter into contracts, and can even sue or be sued in its own name.
Characteristics of a Company
Separate Legal Identity – A company has its own existence, separate from its members.
-
Limited Liability – The liability of members is limited to the amount they have agreed to pay on their shares.
-
Perpetual Succession – The company continues to exist even if its members die, retire, or leave.
-
Artificial Person – A company is not a natural person; it is created by law. It acts through directors and officers.
-
Transfer of Shares – In a public company, shares can be freely transferred from one person to another.
-
Common Seal (optional) – Earlier, a company needed a common seal for authentication, but now signatures of authorized officials are enough.
-
Right to Sue and Be Sued – A company can take legal action or face legal proceedings in its own name.
Kinds of Companies
Companies can be divided into different categories based on their nature, ownership, liability, or purpose.
1. Based on Incorporation
-
Chartered Companies – Created through a royal charter or order. For example, the East India Company. These no longer exist today.
-
Statutory Companies – Established by a special Act of Parliament or State Legislature, usually for public services like banking or insurance. Example: LIC.
-
Registered Companies – Registered under the Companies Act. Most companies today fall under this category.
2. Based on Liability of Members
-
Company Limited by Shares – Members are liable only to the unpaid amount on the shares they hold. This is the most common form.
-
Company Limited by Guarantee – Members agree to pay a fixed amount in case the company winds up. Mostly used for non-profit organizations.
-
Unlimited Company – Here, the liability of members is unlimited, which means personal property can be used to pay debts. Such companies are rare.
3. Based on Number of Members
-
Private Company – A company that restricts the transfer of shares, limits members to 200, and cannot invite the public to buy shares. Example: family-owned businesses.
-
Public Company – Can invite the public to purchase shares, needs at least 7 members, and has no restriction on the transfer of shares. Example: Reliance Industries, Tata Motors.
-
One Person Company (OPC) – Introduced in the Companies Act, 2013, this allows a single person to start a company with limited liability. It is useful for small businesses and startups.
4. Based on Ownership or Control
-
Holding Company – A company that controls another company by owning majority shares or by controlling its management.
-
Subsidiary Company – A company controlled by another company (holding company).
-
Government Company – At least 51% of the capital is owned by the Central or State Government. Example: ONGC, SAIL.
-
Foreign Company – A company formed outside India but doing business in India.
5. Based on Objectives
-
Profit-Making Companies – These are formed mainly to earn profits and distribute them among shareholders.
-
Non-Profit Companies – Formed under Section 8 of the Companies Act, they work for charitable, educational, cultural, or social purposes. The profits earned are used for the objectives of the company and not shared among members. Example: NGOs.
Importance of Companies in the Modern Economy
Raising Capital – Public companies can collect large funds by issuing shares and debentures.
-
Large-Scale Production – Companies make mass production possible, lowering costs and providing goods at cheaper rates.
-
Employment – Companies create job opportunities for a large number of people.
-
Innovation – Many companies invest in research and new technologies.
-
Global Expansion – Companies help expand business activities across countries, encouraging globalization.
Conclusion
A company is a modern form of business organization with its own legal identity and many advantages, such as limited liability and perpetual existence. Different types of companies exist to meet different needs—private companies for families and small groups, public companies for large businesses, government companies for public services, and non-profit companies for social causes. Understanding the kinds of companies helps businesspersons, investors, and policymakers choose the right structure for their goals. In short, companies are the backbone of today’s economy as they promote growth, innovation, and development.
Also Read:
Rights of undertrial prisoners in India
How To Send A Legal Notice In India
