Company form of business and shares
Company form of business
Company form of organization occupies a pivotal place in the present
day business world. Common consumer items like soaps matches, biscuits,
washing powder, bread etc., and major industrial goods like coal,
steel, plastic, computers etc is carried out by mostly company form of
business. You maybe aware of companies like NTPC, ONGC, Hindustan
Lever, HMT, BHEL, TISCO. Let us look at how a company like NHPC is
distinct from a small trader in your locality from the view point of
organizational set up or legal position.
Origin and Meaning of Company.
The origin of company form of business started with the enactment of
Joint Stock Companies Act 1913. Companies like Reserve Bank of India,
State Bank of India are come into existence by a special act of
Parliament. Such companies are not governed by the Companies Act and
are called Statutory companies. Now Companies Act 1956 controls all
the activities of the company right from the formation to the winding
up.
As per Section 3 (1) (i) of the Companies Act, A company means "A
company formed and registered under the act or an existing Company" An
existing company means "A company formed and registered under any of
the previous companies law.
Definition of a Company:- A company may be viewed as an
association of persons who contribute money or money's worth to a
common stock and use it for a common purpose. It is a creation of
law. It is also called an artificial person. A Company has a capital
divisible into transferable shares, having a corporate legal entity and
a common seal. Even though the company is a creation of the members of
such companies, it is separate and distinct from its members.
Special features of a Company.
We notice the following special features of Companies in the definition and the statutory provisions under the companies Act.
Voluntary Association: Persons who are forming the company come together voluntarily and form a company for carrying out a business.
Limited Liability: A company may be limited by guarantee or
limited by Shares and this is the main feature of a company. The
liability of a member is limited to the unpaid amount of shares held by
him in a company limited by shares.No member is bound to contribute
anything more than the nominal value of the shares held by him. For
example, if the face value of a share is Rs. 100 and the share holder
paid Rs. 80, the he is liable to pay only Rs. 20.(The difference
between the face value and the amount already paid). His liability is
limited to the face value of the share i.e. Rs. 100. If he holds more
than one share his liability is limited to the number of shares held by
him. Suppose a share holder holds 100 nos. of shares a company his
liability is limited to Rs.100 x 100 Nos. of shares = Rs. 10000.
In case of a company limited by guarantee, the liability of the member
is limited to the amount guaranteed by him to undertake to contribute
to the asset of the company.
Separate Legal Entity: Separate legal entity means that the
company is separate and independent from its members. Accordingly, a
company can purchase, sell and hold properties, it can open enter into
a contract with others including its own shareholders, it can open bank
account in its own name. So a company has a separate legal entity.
Perpetual Succession: A company continues to exist irrespective
of changes in membership of the company as it is an artificial person
and never dies. Also it is to be noted that the death or insolvency of
an individual member does not affect the continuity of the company.
Transferability of shares: A member can sell or buy shares of a
company from the open market. It is transferable. Liquidity for the
investment of member of a company is possible by this facility. A
Company cannot stop or prevent the absolute right of the shareholder to
transfer the ownership by a provision in the article of the company.
But the manner in which the transfer of shares can be prescribe in the
articles of a company. So the shareholder has the absolute right to
transfer or hold the share of the company as he desire.
Common Seal: A company cannot sigh as it is an artificial person
and this draw back is over come by a company seal. Whenever there is
need of its signature it use the company seal. A common seal is used
as a substitute for its signature. Any documents without the company
seal is not authenticate or binding on the company. By using the common
company seal, it sign and enter into a contract.
Capacity to sue and be sued: A company can sue and be sued in its own name since it enjoys the status of an artificial person.
Separate Property: A company is a legal person and it is
distinct from its members. Since it is a legal person it is the owner
of its assets and bound by its liabilities. It is capable of owning,
disposing and enjoying its property in its own name. The shareholders
are not the joint owners of its assets, even though the capital and the
assets of the company are contributed by its shareholders. So the
property owned by the company is not the property of its shareholders.
Kinds of Companies
Companies can be divided into three categories on the basis of liability.
Companies limited by shares: In such companies, the liability of
the shareholder is limited to the unpaid amount of the shares if any.
During the existence as well as at the time of winding up, such
liability can be enforced. If the shares are fully paid then there is
no liability to the holder of the share.
Companies limited by guarantee: In the case of companies limited by
Guarantee, the liability of the member is limited to the amount which
he undertake to contribute in the event of winding up of the company.
Thus, the liability shall arise only on the event of winding up.
Unlimited Companies: In such companies, liability of the
members is not limited at all. They are bound to contribute the
necessary amount in order to pay off company's debts and liabilities.
Such companies are not found in practice.
A company can be divided in to two categories on the basis of number of members: (i) Private Company (ii) Public Company
1. Private company: As per the Companies Act, a private company
is a company which by its articles: (i) restricts the right to transfer
its shares, if any; (ii) limits the number of its members to fifty
(excluding its employees); and (iii) prohibits any invitation to the
public to subscribe for any shares in, or debentures of the company.
2. Public Company: A public company means a company which is
not a private company, that has issued securities through an IPO
(Initial Public Offering) and is traded on at least one stock exchange
or in the over the counter market.
