Meaning and Definition of a Company

Company is a voluntary association of persons formed for the purpose of doing business having a distinct name and limited liability. It is a juristic person having a separate legal entity distinct from the members who constitute it, capable of rights and duties of its own and endowed with the potential of perpetual succession. The Companies Act, 1956, states that 'company' includes company formed and registered under the Act or an existing company i.e. a company formed or registered under any of the previous company laws.

Characteristic Features
Separate Legal EntityCase: Salomon v. Salomon & Co. Ltd. Limited LiabilityHowever, liability of a company is never limited. Its liability of members only that is limited. Free Transferability of Shares Perpetual Succession Separate property Common Seal Right to enter in contracts Right to own property Right to sue Flexibility of investment An artificial legal body or person An organized and incorporated body

Types of Companies
Private Company &Public Company Limited and Unlimited companies:

Holding and Subsidiary companies

Government Companies Foreign Companies

Private Company
A private company means a company which has a minimum paid up capital of one lakh rupees or such higher paid-up capital as may be prescribed and by its articles : (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to 50, not including:

Private Company
(i) persons who are in the employment of (ii) persons who, having been formerly in the

contd.

the company, and

(c) prohibits invitation to the public to subscribe for any shares in or debentures of, the company; and

employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased;

Private Company
(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

contd.

Where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of membership, be treated as a single member.

Public Company
A public company means a company which: (a) is not a private company (b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed; and (c) is a private company, which a subsidiary of a company, which is not a private company.

Limited companies: Company may be limited by shares or limited by guarantee. Company limited by shares :In this case, the liability of members is limited to the amount of uncalled share capital. No member of company limited by the shares can be called upon to pay more than the face value of shares.
Company limited by the guarantee A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively thereby undertake to pay if necessary on liquidation of the company Unlimited Company: The liability of members of an unlimited company is unlimited. Therefore their liability is similar to that of the liability of the partners of a partnership firm.

Holding and Subsidiary companies A company shall be deemed to be subsidiary of another company if :1.That other company controls the composition of its board of directors ; or 2.That other company holds more than half in face value of its equity share capital 3.Where the first mentioned company is subsidiary company of any company which that other's subsidiary. eg Company B is subsidiary of the Company A and Company C is subsidiary of Company B, therefore Company C is subsidiary of Company A. The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove all or majority of directors of the subsidiary company without consent or concurrence of any other person.

Government Companies Means any company in which not less than 51% of the paid up share capital is held by the Central Government or any State Government or partly by the Central Government and partly by the one or more State Governments. Government Companies are also governed by the provisions of the Companies Act. However, the Central Government may direct that certain provisions of the Companies Act shall not apply or shall apply only with such exceptions, modifications and adaptions as may be specified to such government companies. Foreign Companies Means a company incorporated in a country outside India under the law of that other country and has established the place of business in India.

Salomon v Salomon & Co Ltd (1897)

Mr. Salomon had a boot manufacturing business which he decided to incorporate into a private limited company. He sold his business to the newly formed company, A Salomon & Co Ltd, and took his payment by shares and a debenture or debt of 10,000. Mr Salomon owned 20,000 1 shares, and his wife and five children owned one share each. Some years later the company went into liquidation, and Mr Salomon claimed to be entitled to be paid first as a secured debenture holder. The liquidator and the other creditors objected to this, claiming that it was unfair for the person who formed and ran the company to get paid first. However, the House of Lords held that the company was a different legal person from the shareholders, and thus Mr Salomon, as a shareholder and creditor, was totally separate in law from the company A Salomon & Co Ltd. The result was that Mr Salomon was entitled to be repaid the debt as the first secured creditor. In this case, Mr Salomon was the major shareholder, a director, an employee and a creditor of the company he created.