A company is a natural legal entity formed by the association and group of people to work together towards achieving a common objective. It can be a commercial or an industrial enterprise. Different types of companies are taxed differently; therefore, the taxation of the company defines its type. Some of the main definitions of the company are as follows;
According to the definition of a company by the Indian Act 2013;
‘‘Aregistered association which is an artificial legal person, having anindependent legal, entity with perpetual succession, a common seal for itssignatures, a common capital comprised of transferable shares and carryinglimited liability.’’
According to the US legal definition;
‘‘Acompany can be a corporation, partnership, association, joint-stock company,trust fund, or organized group of persons, whether incorporated or not, and (inofficial capacity) any receiver, trustee in bankruptcy, or similar official, orliquidating agent, for any of the foregoing.’’
According to the British definition;
‘‘A company is a body corporate or an incorporated business organization registered under the companies act. It can be limited or unlimited company, private or a public company, company limited by guarantee or a company having share capital, or a community interest company.’’
Table of Contents
Key Features of a Company
Thekey features and characteristics of a company are as follows;
Thelaw treats the company as a legal artificial person because it has its name andbank accounts. It can also own property under its name, file a lawsuit againstother companies or personals, or be partnered up with other companies. Itperforms all of the activities that a person can legally do; a company can doit well. Therefore, it acts as an artificial individual.
Whenwe say legal entity, what it means that it’s completely independent of itspeople who control its operations. In other words, the company won’t beresponsible if its members don’t pay their debt. The same goes for the companyas well; that the members don’t have to pay for the debt of the company, ifit’s unable to pay to its creditors.
Acompany starts its business operations when it is registered by the law andunder the ordinance of the companies act. The registration process of a companyis lengthy; it should have a memorandum of association, board of directors,share prices and shareholders, a name, office, phone number, address, and otherlegal documentation.
Theliability of shareholders is limited to their share price only; it is in thelimited companies by share. On the other hand, in the case of limited companiesby guarantee, where the share of contributors is like an asset in the company;if the company goes bankrupt, then the shareholders have to pay a small amountsto cover up the loss of the company.
Aswe know that a company acts as an artificial legal individual, therefore, ithas a stamp or seal with the name and address engraved on it. This stamp wouldbe like the signature of the company. The stamp and company’s seal is used forthe verification and authorization of various documents.
Unlikeproprietorship, partnership or any other type of business, a company doesn’tdepend upon its owners, board of directors, shareholders, or employees. Manypeople come and go in the company, but it stays. Therefore, the existence ofthe company is much stable than
Types of Companies
We can categorize companies based on various types like; liability, taxes, shares members and control. Some of those classifications are given below with examples;
Classification of Companies based on Liabilities
Companies Limited by Shares
Asthe name implies, the liability of the company is limited to the share price ofeach shareholder. Personal assets of the shareholders won’t be disturbed; theirresponsibilities are limited to their debt of the company up to their shareprice only.
Companieslimited by shares can be public or private.
Companies Limited by Guarantee
Companieslimited by guarantee doesn’t issue shares or have shareholder. They’re usuallynon-profit organizations. If in the case of profit, the company distributes itamong its members if it’s not a charitable organization. If the company goesbankrupt, then their liability is limited to the amount they have pre-decidedin the memorandum of the company. Guarantors are the members of the companieslimited by guarantee.
Asthe name implies the liability of the shareholders is not limited to the shareprice they own, it goes beyond. They may lose their assets if the company isunable to pay debt to its creditors. We don’t see many unlimited companiesbecause it involves a lot of risks.
Classification of Companies based on Members
One Person Company
Oneperson company is an Indian concept where one person can create a companywithout having partners, board of directors or shareholders. In OPC, you’llhave all the advantages of sole proprietorship like; you don’t have to shareprofit with others, take the risk on your own without requiring approval fromothers. Your liabilities are limited like a company.
OPChas some differences with private limited companies like; you should mentionthe name of a person in the memorandum of association, who’d take the chargeafter your passing. The minimum capital for starting the OPC is 100,000.
ARADOFarms, VISHRUT Biotech, and HCARE Holistic Enterprise are some of the wellknown one-person companies.
Aprivate company is a form of company that doesn’t offer its shares to thepublic like in the public companies. The numbers of shares are limited to theclose members only. However, members can transfer their shares to anyone butthey can’t offer it to the general public.
Aprivate company also goes by the name of unlisted or unquoted company. Somepeople think that private companies are small because they aren’t public.
Someof the big companies like Dell (hardware and tech equipment), Virginia Atlantic(airline), PricewaterhouseCoopers (business supplier and Service Company), Mars(food and drink) and John Lewis Partnership (retail). These are all are theprivate companies that are doing their business across the world.
Publiccompanies are those that advertise their stock and shares to the generalpublic. People can freely trade the stock of the public company without anyrestrictions. The shares of listed companies are traded in the stock exchangemarket.
InEngland, a public company must have a minimum of two directors and shareholdersrespectively. It’s then it would fall into the category of public companies. Itshould have a total share value of £50,000.
Wheninvestors buy the stock of the company, then they become the equity owners ofthe company. Some companies are private in the beginning, later they become thepublic companies after fulfilling all the mandatory legal requirements.
Google, F5 Network, Chevron Corporation, Proctor and Gamble Company are some public companies; they also used to be the private companies. The reason companies move from private to public is because they need capital to expand their business operations.
Classification of Companies based on Control
Theeconomy of a country plays a very important role in managing the GDP and index.Government companies are those that hold 51% of the share capital of thecompany. The remaining 49% of the share, the company offers it to the publicand private individuals.
MixedOwnership Company is also the name used for the government companies. Where wesee the management and chain of hierarchy of government and technical skill ofthe private sector, it’s a great mixture of both public and private sectors.
HeavyIndustry Taxila, Industrial Development Bank, Faisalabad Electric SupplyCompany, and Karachi Urban Transport Corporation, PTCL, Oil, and GasDevelopment Company are some of the examples of Government Companies.
Holding and Subsidiary Companies
Holdingand Subsidiary companies are two companies; where holding is a parent companythat controls the business operation of the subsidiary company. By control Imean the holding company has a complete over the selection and election ofboard of directors, it holds all the shareholders of the subsidiary company.The subsidiary company can make its decision once it’s become independent.
Subsidiarycompanies can be profit or non-profit organizations. The subsidiary company ofWest’s Encyclopaedia of American Law is 2008, Thompson and Thompson, and TheGlobal Tutor are some of the examples of Holding and Subsidiary companies.
Anassociate company is the business valuation firm in which one company owns asignificant voting share of another company. The voting share usually rangesfrom 20 to 50%, if it is more than 50%, then it would be subsidiary company. Ifit’s less than 50%, then the owner doesn’t have to consolidate the financialstatement of associate. If it is more than 50%, then it has to consolidate thefinancial statement, where the associate would consider the balance sheet as anasset.
Establishinga public or a private company is a very long process and it requires a lot ofpaperwork. But the company helps you to raise capital, perhaps you won’t beable to raise without it. Before going to take the step of a company, it’sbetter to know the different types of companies and what type of company wouldbe best for you.