1. Objective :- Understand meaning of company.
- Understand the characteristics of company.
- Disadvantages of company.
2. Introduction/meaning :
The Companies Act 2013 was passed by the Lok Sabha on 18 December 2012 and by the Rajya Sabha on 08 August 2013. The bill has 470 sections against 658 sections, this act replaced the Companies Act 1956 on 29 August 2013 in the presence of the President.'Company' as defined under section 2(20) of the Companies Act, 2013 means a company incorporated under the Companies Act, 2013 or any previous Act.
Companies means an incorporated firm in which two or more persons work together, and share profits and losses equally. It has no legal meaning but has its own separate legal entity from the members of the company.
The word company is derived from the Latin words 'com' means a group and 'panies' means a bread, that means a group that eats their bread together.
3. Characteristics of company :- Incorporated association person :
Company is incorporated or registered association, a single person cannot form a company, at least two or more persons are required to form a company.
A minimum of 2 members are required under a private company or a maximum of 200 where as under a public company the minimum is 7 and the maximum is unlimited.
The company is an artificial person by law, as it is not born naturally, it shall continue to be so until it is wound up. The company bears its own name, bears its own signature, can sue or be sued by others.
A company is a separate legal entity by law, it has its own private body separate from the members. The company can enter into any contract, take loans, sue or be sued by third parties, it can open bank accounts in its own name, it can also buy property in its own name.
Another main feature of the company is the perpetual succession, that means the existence of the shareholders or members is not affected in the company while they die or retire.
The company will continue to run as it runs, there is no effect on the admission or entry of the members.
Every company must have a common seal, which it represents as the signature of the company, the common seal bears the name of a company, as the company is an artificial person, it cannot sign. When the common seal of the company is affixed on a document, that document creates a bond with the company.
The liability of the shareholder of the company is limited, this is an advantage for the shareholders as the shareholder does not have to sell his personal property to pay the debt of the company.
The shareholder will have to pay the liability as much as the shareholder's share money is outstanding.
In public company minimum 7 members are required and maximum no limit or not specified.
As per Companies Act, 2013 minimum 2 members are required in case of public company and maximum 200 members are required.
The management of the company is separate from the directors and members, the company being artificial person, it cannot manage by itself, so it is managed by the directors and members, they act on behalf of the company in return for which the company gives them profits.
- Transferability of shares :
As per section 44 of the Companies Act, 2013, shares and interest on shares of any member are movable property. There is no restriction for transfer of any share and interest.
It can be transferred from one person to another. But only in certain cases Shares are not transferable.
- Companies is not a citizen :
According to Article 19 of the Indian Constitution, the company does not have legal citizenship, it has only a fundamental right like a human being has
4. Advantages/merits of company
- Adequate Resources of capital :
Compared to a sole proprietorship or partnership firm, a company has maximum resources in the form of capital, because the company also sells its shares out of country, due to which it also has capital from out of country.
One of the most advantages of a company is limited liability. In case of dissolution of the company, the members have to pay the debt of the company only to the extent of their unpaid shares, the members do not have to sell their personal property to pay the debt of the company.
The existence of members does not matter to the company, the company is permanent, retirement or admission of a member cannot become a burden on the company.
Directors and members come and go, but the company does not stop, it will go on.
The members of the company can freely transfer their ownership to anyone without any restriction. On the other hand, partners cannot transfer their shares in a partnership firm.
There is no limit on the maximum number of shareholders in a company, the risk is shared among them and due to the maximum number of shareholders the company is able to spread more risk. This is also one of the main reasons of company for the earning more profit.
5. Disadvantages/Demerits of company
- Difficulty in formation :
The process of forming a company is very long as it involves preparation of several evidences like Memorandum of Association, Articles of Association and Prospectus which are very costly and time consuming.
- Encouragement to monopoly :
The company has maximum resources in terms of capital, so the company is able to produce goods on a large scale. Due to the production of goods on a large scale, the small company does not get the opportunity to sell its goods to the public.
The result is that, due to monopoly, small companies cannot survive for a long time and competitors also end up. Taking advantage of it's company can sells their goods at a higher price.
- Excessive legal interference :
Government also enacts in companies so due to interference of government in company affairs more provisions and laws are implemented. In this case the company has to fulfill the government provisions and laws, which is a burden on the company.
As per the Companies Act, it is mandatory for a public company to place all its documents and books of accounts in public. So there is no secret between the company and the public, they can see the necessary documents of the company.
The Companies Act provides for a very long process for winding up a company. We have to go through a lot of documents and a lot of approvals which is very time consuming and expensive.
6. Types of company :
- Royal / charted company :
This type of company were were formed by royal charter. Like north east India company which is formed in 1600 AD
This type of company are formed by parliament with a specific Act, under this act defines company's power, provision and relation with government
A company which is registered under the Companies Act, 2013 or any previous law is called a registered company. The rights and duties of the members and shareholders are defined in the Articles of Association. These companies are private as well as public.
- Companies limited by shares :
As per section 2(22), the liability of the members of the company is limited,
Members can incur liability only to the extent of the face value of their shares.
If the members have paid the full value of the shares, they will not get additional money in case of company loss.
- Companies limited by guarantee :
According to section 2(11) in this type of companies members liability are limited. Members can borrow only that amount which the members have guaranteed to pay.
Such a company is mostly a non profit organization.
- Unlimited Liability companies :
As per section 2(92) the liability of these companies is limited, such companies are able to take as much liability as they want to pay to their department
But in case of unlimited liability the personal property is also attached to pay the liability which is disadvantage to the company.
As per section 2(68) a company which has a minimum paid-up capital is recognized as a private company.
There are restrictions on the transfer of shares in a private company.
Minimum 2 members and maximum 200 members are required in a private company.
According to section, 2(71), a companies which is not a private company that is a public company, it is also know as listing company, in this company public can also buy shares.
In public company there is no restriction in transfer of shares.
In public company at least 7 members required to form, and maximum not limit.
As per section 2(62) a company consisting of only one person and he is also a director of that company, such company is known as one person company.
He can bear all the profits of the company as well as all the losses of the company.
Example: Yuvendra Agro (OPC) Pvt. Ltd.
As per section 2(45) the companies in which minimum 51% capital is held by the government are called government company, it can be central government or state government.
Example: Oil and Natural Gas Corporation Limited (ONGC), Coal India Limited and Power Finance Corporation Limited etc.
As per section 2(46), a company which holds partly or wholly the shares of another company, such companies are known as holding companies.
Example: Berkshire Hathaway and Tata Sons etc.
As per section 2(42), foreign company means a company which is established in India through an agent or electronic mode etc.
Example: ABB Limited, Abbott India Limited, Agro Tech Foods Limited and Alpha Graphic Limited etc.
- Multi National Company (MNC) :
Companies that have management, production, and distribution services available in more than one national that company are multinational companies.
Examples : Tata Consultancy Services, Infosys, Hindustan Unilever and ITC limited etc.
7. Conclusion :
Companies play an important role in the global economy, it provides people with goods and services and fulfills people's desires to get what they want. The process of company registration in India is very costly and time consuming which is most disadvantageous for the company.
The company's performance is based on leadership, financial health, market position, competitive landscape and good strategy. A company's viability depends on its ability to create consumer, innovation and effectively manage risks and challenges.
It is necessary for the company to manage its performance, improve its company according to time, get new ideas and research about the needs of the consumers, make good strategy.
Wow informative blog
ReplyDeleteThis information is so beginner friendly for share markets and companies👍
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