A company may be an incorporated company or a corporation or an unincorporated company. An incorporated company is a single and legal person distinct from the individuals constituting it, whereas an unincorporated company, such as a Partnership, is a mere collection or aggregation of individuals.
Company – Its Nature
Since a corporate body is the creation of laws it is not a human being it is an artificial person; it is clothed with many rights, obligations, powers and duties prescribed by law it is called “person”. It is “appropriately described as an artificial person being invisible, intangible, existing only in the contemplation of law.
Advantages of Corporate Form of Enterprises:
- Corporate Personality
A Company is a separate legal entity it bears its own name and acts under a corporate name. It has a seal of its own. Its assests are separate and distinct from those of its members. It is also a different ‘person’ from members who compose it. As such it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts and suing or being sued in the same manner as an it has a separate legal entity..
- Limited Liability
In the case of companies limited by shares, no member is bound to contribute anything more than the nominal value of the shares held by him which remains unpaid. The privilege of limiting the liability is one of the principal advantages of doing business under the corporate form of organization.
For example, if Mr. Antony holds shares of the total nominal value of Rs. 1,000 and has already paid Rs. 500/- (or 50 % of the value) as part payment at the time of allotment, he cannot be called upon to pay more than Rs. 500/- the amount remaining unpaid on his shares. If he holds fully paid shares, he has no further liability to pay even if the company is declared insolvent. In the case of a company limited by guarantee, the liability of members is limited to a specified amount memtioned in the memorandum.
- Perpetual Succession
An incorporated company has perpetual succession. The death or insolvency of individual members does not in any way, affect the corporate entity, its existence or continuity. “Members may come and members may go but the company can go on forever”.
- Transferable Shares
“The shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company”. This encourages investment of funds in the shares, so that the members may encash them at any time.
- Separate Property
A company as a legal entity is capable of owning its funds and other assets. “The property of the company is not the property of the shareholders; it is property of the company”.
- Capacity to Sue
As a juristic legal person, a company can sue in its name and be sued by others. The managing director and other directors are not liable to be sued for dues against a company.
- Flexibility and Freedom
The company has an autonomy and independence to form its own policies and implement them, subject to the general principles of law, equity and good conscience and in accordance with the provisions contained in the Companies Act, Memorandum and Articles of Association.
The directors and managers can carry on the business activities with freedom, authority and accountability in accordance with the Company Law.
Difference form of Companies:
- Private Company
- Public Company
- Formation and Registration of Non-Profit organizations in IndiaNon-banking Financial Company
- Sec 11 Company Additional Licensing/ Registration
- Limited liability Partnership (LLP)
- Normal Partnership Firm
1. Private Company:
A private company means a company, which has a minimum paid-up capital of 1 (one) lacs rupees or such higher paid-up capital and registered under the Companies Act 2013.
a) The Board of directors in a private limited company shall consist of not less than 2 (two) Directors. The companies Act does not prescribe any number as the maximum number of directors.
b) A private limited company may be said to be an association consisting of not less than 2 (two) members, which is registered under the Act. The number of members is limited to 200 (two hundred).
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of this definition, be treated as a single member.
c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; and
A private company may issue debentures to any number of persons, the only condition being that an invitation to the public to subscribe for debentures is prohibited.
It must be borne in mind that an invitation is not prohibited but invitation to the public is prohibited. If a company invites a selected few people e.g. employees, friends or relatives of directors, then it will not be invitation to public.
d) Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
e) The words ‘Private Limited’ must be added at the end of its name by a private limited company.
2. Public Company:
A public company means a company which is not a private company or has a minimum paid-up capital of 5 (five) lacs rupees or such higher paid-up capital and registered under the Companies Act, 2013 or is a private company which is a subsidiary of a public company.
a) The Board of directors in a public limited company shall consist of not less than 3 (three) Directors. The Companies Act does not prescribe any number as the maximum number of directors.
b) A public company may be said to be an association consisting of not less than 7 members, which is registered under the Act. The number of members is unlimited.
c) Not prohibiting any invitation to the public to subscribe for any shares in, or debentures of, the company; and
d) Not prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
e) The words ‘Limited’ must be added at the end of its name by a Public Limited company
3. Formation and Registration of Non-Profit organizations in India:
A public charitable trust is usually floated when there is property involved, especially in terms of land and building.
Different states in India have different Trusts Acts in force, which govern the trusts in the state; in the absence of a Trusts Act in any particular state or territory the general principles of the Indian Trusts Act, 1882 are applied.
The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the trust) should be enshrined. In every trust deed, the minimum and maximum number of trustees has to be specified. The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settler/s and trustee/s in presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.
A trust needs a minimum of two trustees; there is no upper limit to the number of trustees. The Board of Management comprises the trustees.
Different states in India have different Societies Registration Acts in force, which govern the societies in the state; in the absence of a Societies Registration Act in any particular state or territory the general principles of the Societies Registration Act, 1860 are applied.
According to Section 20 of the Societies Registration Act, 1860, the following societies can be registered under the Act: ‘charitable societies, military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collection of natural history, mechanical and philosophical inventions, instruments or design.’
Societies are registered under the Societies Registration Act, 1860, which is a federal act. In certain states, which have a charity commissioner, the society must not only be registered under the Societies Registration Act, but also additionally, under the Bombay public Trusts Act.
The main instrument of any society is the memorandum of association and rules and regulations (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be enshrined.
A Society needs a minimum of seven managing committee members; there is no upper limit to the number managing committee members. The Board of Management is in the form of a governing body or council or a managing or executive committee.
c) Association Not For Profit:
Under Section 11 permits the registration, under a licence granted by the Central Government, of associations not for profit with limited liability without being required to use the word “Limited” or the words “Private Limited” after their names.
The Central Government may grant such a licence if:
a) It is intended to form a company for promoting commerce, art, science, religion, charity or any other useful object; and
b) The company prohibits payment of any dividend to its members but intends to apply its profits or other income in promotion of its objects.
The main difference between a general incorporation and a non-profit incorporation is that this cannot reward excessive profit to any person or dividends to shareholders or investors however; this can pay reasonable salary and expenses of business. Otherwise, in all other respect this type of organization is almost same as other type of corporations.
They usually have a fluctuating membership. An elected Committee of Management usually controls the day-to-day running of the organization.
The company is registered without paying any stamp duty on its Memorandum and Articles.
Special Licensing for Non – Profit Organizations:
In addition to registration, a non-profit engaged in certain activities might also require special license/permission. Some of these include (but are not limited to):
a) A place of work in a restricted area (like a tribal area or a border area requires a special permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by the relevant local authority (i.e., district magistrate).
b) To open an office and employ people, the NGO should be registered under the Shop and Establishment Act.
c) To employ foreign staff, an Indian non-profit needs to be registered as a trust/society/company, have FCRA registration and also obtain a No Objection Certificate. The intended employee also needs a work visa.
d) A foreign non-profit setting up an office in India and wanting staff from abroad needs to be registered as a trust/society/company needs permission from the Reserve Bank of India and also a No Objection Certificate from the Ministry of External Affairs.
Comparison among Trust, Society and Non Profit Company
|Statute/Legislation||Relevant State Trust Act or Bombay Public Trusts Act, 1950||Societies Registration Act, 1860||Indian Companies Act, 2013|
|Jurisdiction||Deputy Registrar/Charity commissioner||Registrar of societies (charity commissioner).||Registrar of companies|
|Registration||As trust||As Society||As a company u/s 11 of the Indian Companies Act.|
|Registration Document||Trust deed||Memorandum of association and rules and regulations||Memorandum and articles of association. and regulations|
|Stamp Duty||Trust deed to be executed on non-judicial stamp paper, vary from state to state||No stamp paper required for memorandum of association and rules and regulations.||No stamp paper required for memorandum and articles of association.|
|Members Required||Minimum – two trustees. No upper limit.||Minimum – seven managing committee members. No upper limit.||Minimum three trustees. No upper limit.|
|Board of Management||Trustees / Board of Trustees||Governing body or council/managing or executive committee||Board of directors/ Managing committee|
|Mode of Succession on Board of Management||Appointment or Election||Appointment or Election by members of the general body||Election by members of the general body|
4. Non-banking Financial Company:
A non-banking financial company (NBFC) is a company registered under the Companies Act, 2013 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.
A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (residuary non-banking company).
5. Limited Liability Partnership (LLP):
LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP shall be a body corporate and a legal entity separate from its partners.
- The LLP will have perpetual succession. It is capable of entering into contracts and holding property in its own name.
- It is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
- Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
- Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
- Partnership Firm:
In this form of organisation, few like-minded persons pool up their resources to form a partnership firm. According to Indian Partnership Act, 1932, partnership means “The relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all”.
A partnership firm cannot have more than 20 (Twenty) members in any business and 10 (Ten) in the case of banking business.
Features of Partnership:
a) Contractual Relationship
Since partnership arises out of agreement between persons, only those persons who are competent to contract can be partners.
b) Existence of Business
There can be no partnership without business. The persons who have agreed to become partners must carry out some business activity.
c) Sharing of profits
The agreement to carry on business must be entered into, with the object of making a profit and sharing it amonng all the partners.
d) Mutual agency
The business must be carried on by all the partners or by any one or more of them acting for all the partners. Thus each partner is both an agent and a principal for all other partners.
Partnership is an ideal form of organization for medium, scale, business operations which require greater amount of capital and risks than sole proprietorship or Hindu Undivided Family.