Definition of a Company
History of the Companies Act
Classification of Companies Based on Incorporation
Classification of Companies based on Members
Classification of Companies based on Liability
Classification of Companies based on Control
Classification of Companies Based on Ownership
Classification of Companies based on Nationality
Other kinds of Companies
Conclusion
Definition of a company
According to Section 2 (20) of the Company Act 2013, “Company means a company incorporated under this Act or any previous Company Law.” According to Prof. Haney “A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and common seal.”
History of the Companies Act
The concept of the company act in India was built on the English Companies Act, of 1844. The first company legislation was introduced in India and was known as The Joint Stock Companies Act. This Act was later replaced by the Joint Stock Companies Act, 1857. Later, the Indian government in the year 1950 appointed a Committee to draft a new act. The reason for this was to amend the Indian Companies Act so that it would help the trade in India grow. This caused the introduction of the Companies Act of 1956. The Companies Act of 1956 was largely by the British Companies Act. The Companies Act of 1956 was repealed by the Companies (Amendment) Act of 2013. The act was made by keeping in mind the need for increased responsibilities of corporate executives in the IT sector and can be considered a landmark decision which changed the trajectory of companies in India.
Classification of companies based on Incorporation
A chartered Company is a company which comes into existence under a special charter or by a monarch or crown. If a chartered company breaks any rule laid down in the charter, the crown may cancel the charter. In India, chartered Companies are not in existence after 1947. These companies flourished in colonial times.
E.g.: The East India Company, The Bank of England and The Chartered Bank
They are also known as corporations. A statutory company is a company which is incorporated under a separate Act of the parliament legislature or state legislature. A company is incorporated with some special powers and privileges which it cannot claim under the Companies Act. This method of incorporation is adopted for companies of national importance.
E.g.: The Reserve Bank of India, The State Bank of India, and The Life Insurance Corporation of India.
These are the companies which are formed and registered under the Companies Act, 2013 or were registered under earlier Companies Acts.
Classification of companies based on Members
Section 2(68) as amended Companies Act 2015 defines a Private Company as a company having a minimum capital of one lakh rupees. It restricts any invitation to the public to subscribe to any securities of the company as it cannot exceed the maximum of 200 members.
A public company means a company which by its articles does not restrict the right of members to transfer the shares, limit the number of its members and does not prohibit any invitation to the public to subscribe to any of the shares and debentures of a company. Any company that is not a private company is a public company. It has to have a minimum capital of five lakh rupees.
Classification of companies based on Liability
Section 4(1)(d)(i) states that the liability of members of the company is limited to the amount unpaid, if any, on the shares held by them. If the shares held are fully paid then the shareholder is not liable.
Section 4(1)(d)(ii) suggests that if the liability of the members of a Company is limited to a fixed amount which the members undertake to contribute to the company in case of its winding up such a company is called a company limited by guarantee. These companies may or may not have share capital. If they have a share capital, the members are liable to pay the unpaid amount on the shares as well as the amount guaranteed by them. However, most of these companies are formed without share capital, as the companies formed not for trading but to promote art and culture in society.
A company without limited liability is called an unlimited liability company. In the case of such a company, there is no limit on the liability of its members. Every member is liable for the debts of the company as in a partnership.
Classification of companies based on control
As per section 2(87) of the Companies Act of 2013, a holding company is a company which controls a subsidiary company. Therefore a holding company is a company which holds more than 51% of the equity share capital of another company. This would mean that the major decisions of the subsidiary company lie with the holding company.
Section 2(87) of the Companies Act of 2013, means that a subsidiary company is a company which is controlled by a holding company. This means that not less than 51% of the equity share capital is held by a single company.
Classification of companies based on ownership
A government company means any company in which at least 51% of the share capital is held by the central or the state government of India. A government company may be a private or public company. A government company need not use ‘Limited’ or ‘Private Limited’ at the end of its name.
A non-government company is a company which is owned and managed by private investors. Any company which is not a government company is a non-government company. If the government doesn’t hold the majority of shares of a company then it is considered as a non-government company.
Classification of companies based on Nationality
A domestic company is a company which is registered or incorporated in India. The majority of the companies in India are domestic companies since they are registered under the Companies Act in India.
A foreign company is a company which is registered outside India but has a trading relationship or its branch set up in India. As per Section 2(42) of the Companies Act 2013, foreign company means any company or body incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other way.
FERA Company is a company in India in which foreign residents hold more than 40% of its equity capital. Now it is called FEMA (Foreign Exchange Management Act).
Other Kinds of Companies
Companies formed not for profit but for promoting non-trading purposes such as art, science, education, sports etc. can obtain a license from the Central Government and get themselves registered as companies with limited liability under section 25 of Companies Act 1956 or section 8 of Companies Act 2013.
A Family Company means a company in which one man holds practically the whole or a substantial number of shares of the company and has controlling powers over the company and some dummy members who are mostly his relatives or friends hold one or two shares of each. The dummy members are included only to fulfil the legal requirements of minimum members.
The 2013 Act did not allow one person to form a company. In the year 2015, an Expert Committee recommended the formation of one personal company to benefit entrepreneurs wanting to set up a corporate entity without members.
Companies Act 2013 introduced the new concept of a small company, which means a company other than a public company having paid up capital of less than 50 lakhs. A small company will not apply to holding or subsidiary companies and companies registered under section 8 of the Companies Act.
Companies Act 2013 allows a company to be formed and classified as a dormant company for holding assets or intellectual property subject to the company not having any significant accounting transactions. An inactive company can also be a dormant company.
The companies act 2013 defines that much controversial Associate Company to mean a company which has significant influence over the other company. Yet, it is not a subsidiary company, but rather a joint venture company.
Conclusion
Understanding the Companies Act 2013 helps distinguish commonalities and differences between companies. The act provides a framework for the companies, unifying them in the process. It also regulates the company’s activities making sure that no company contravenes the act.
Author- Prashasti Shetty
Qualification- BBA
University- Mangalore University
