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Last updated: October 28th, 2024 3:56 PM

Definition of a Company in Law

We all know what a company is—a business entity where people come together to achieve a common purpose, usually generating profit. But do you know the legal definition of a company? In this article, we’ll explore the definition of a company in law, along with its characteristics and types. If you are ready to start a company in India, IndiaFilings can guide you through the entire Company registration process with expert assistance.

What is a Company?

A company is a legal entity formed by a group of individuals to engage in business or trade with the intention of earning profits or achieving specific objectives. Companies exist as separate legal entities, meaning they are distinct from the people who own or manage them. The concept of a company plays a crucial role in modern commerce, offering a framework for businesses to operate, grow, and ensure legal compliance. This article explores the meaning of a company, its essential characteristics, and the different types of companies recognized under Indian law, particularly the Companies Act 2013.

Meaning and Definition of a Company in Law

The term company is derived from the Latin words ‘com’ (together) and ‘panis’ (bread), symbolizing a group of people coming together for a common purpose. Legally, it refers to a corporate entity recognized by law, capable of entering contracts, owning property, and conducting business activities in its name. According to Section 2(20) of the Companies Act, 2013, "A company means a company incorporated under this Act or under any previous company law." Definitions by Legal Experts: Justice James: “A company is an association of persons united for a common object.” Prof. Haney: “A company is an artificial person created by law, having a separate legal entity with perpetual succession and a common seal.” Lord Lindley: “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for some common purpose. The common stock so contributed is denoted in money and is the capital of the company.” Salomon v. Salomon & Co. Ltd. (1897): This landmark case established that a company is distinct from its shareholders, solidifying the principle of separate legal personality in corporate law.

Characteristics of a Company under Law

The definition of a company in law carries several distinct characteristics that differentiate it from other business forms like sole proprietorships or partnerships. Here are the primary legal characteristics of a company:

Artificial Legal Person

A company is a legal entity created by law. It has all the rights and responsibilities of a natural person, such as entering into contracts, owning assets, and suing or being sued. However, it cannot physically act; it operates through its Board of Directors.

Separate Legal Entity

A company has a distinct legal identity from its members. This ensures that the company’s assets and liabilities are separate from those of its shareholders. The principle of separate legal personality was affirmed in the Salomon case, protecting shareholders from personal liability for the company’s debts.

Limited Liability

The liability of a company’s shareholders is limited to the unpaid value of their shares. This ensures that the personal assets of shareholders are protected, even if the company faces financial difficulties.

Perpetual Succession

The company’s existence is not affected by the death, insolvency, or retirement of its members. It continues to exist until it is legally dissolved through winding-up procedures.

Transferability of Shares

In a public company, shares can be freely transferred, providing liquidity to investors. However, private companies may impose restrictions on share transfers through their Articles of Association.

Common Seal (Optional)

Though optional under the Companies Act 2013, many companies use a common seal as their official signature for validating documents.

Representative Management

The shareholders elect a Board of Directors to manage the company’s affairs. This ensures professional and efficient management, as the day-to-day operations are overseen by directors.

Voluntary Association for Profit

A company is formed voluntarily by individuals or entities with the intention of conducting business for profit. Profits are shared among shareholders as dividends.

Types of Companies under the Companies Act 2013

The Companies Act 2013 provides several classifications of companies to suit different business needs. Here are the primary types of companies based on various factors:

On the Basis of Incorporation:

Chartered Companies: These companies are formed by royal charters and no longer exist in India.
Statutory Companies: These are established by an Act of Parliament or state legislature for specific purposes. Example: Reserve Bank of India (RBI).
Registered Companies: Registered companies are formed under the Companies Act 2013 and are the most common business entities in India.

On the Basis of Liability:

Companies Limited by Shares: Shareholders’ liability is limited to the unpaid value of their shares.
Companies Limited by Guarantee: Members guarantee a specific amount to be paid in case the company is wound up.
Unlimited Liability Companies: The liability of members is unlimited, making them personally responsible for the company’s debts.

On the Basis of Number of Members:

Private Company:

Limited to 200 members.
Cannot invite the public to subscribe to shares.
Must include “Private Limited” in its name.

Public Company:

No limit on the number of members.
Can raise funds by issuing shares to the public.

On the Basis of Control:

Holding Company: A company that holds majority control over another company’s Board or share capital.
Subsidiary Company: A company controlled by a holding company.

On the Basis of Ownership:

Government Company: A company where 51% or more of the share capital is held by the government.
Non-Government Company: A company owned and operated by private individuals or entities.
Foreign Company: A company registered outside India but operating within India.
One-Person Company (OPC): Introduced under the Companies Act 2013, an OPC allows a single individual to run a company with the benefits of limited liability and ease of management.

Why Form a Company? Benefits of Incorporation

Forming a company provides several advantages for businesses, including:

Limited Liability Protection: Protects the personal assets of shareholders.
Separate Legal Identity: Allows companies to operate independently from their owners.
Perpetual Succession: Ensures continuity, even if ownership changes.
Ease of Raising Capital: Companies can raise funds through share issuance.
Tax Benefits: Some companies enjoy lower tax rates and other incentives.

How to Start a Company in India – A Step-by-Step Guide

Starting a company in India can be a rewarding venture, but the process requires careful planning and compliance with legal procedures under the Companies Act 2013. Whether you aim to establish a private limited company, a public limited company, or an LLP (Limited Liability Partnership), following the right steps ensures a smooth registration process.

Step 1: Choose the Right Business Structure

Selecting the correct legal structure is essential, as it influences the company's operations, compliance requirements, tax obligations, and ease of raising funds. Here are the most common types of companies in India:

Step 2: Reserve a Company Name on the MCA Portal

The Ministry of Corporate Affairs (MCA) requires companies to have a unique name that reflects their business activities and is not identical to any existing company. You can submit a RUN (Reserve Unique Name) application on the MCA portal to check name availability.

Ensure the name complies with the Companies Act, 2013 rules.
You may propose two names to increase the chance of approval.

Step 3: Obtain a Digital Signature Certificate (DSC)

All company documents must be digitally signed by the proposed directors and shareholders. For this, you need to:

Step 4: Apply for Director Identification Number (DIN)

Every director of the company must obtain a Director Identification Number (DIN) from the MCA.

Step 5: Prepare Documents for Company Registration

To register your company, you need to prepare the following essential documents:

Memorandum of Association (MOA)
Articles of Association (AOA)
Proof of Registered Office Address
Identity Proofs and Address Proofs

Step 6: File the SPICe+ Form on the MCA Portal

The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form integrates various services like company registration, PAN/TAN allotment, and GST registration. Here’s how to proceed:

Visit the MCA portal and fill the SPICe+ form online.
Attach the MOA, AOA, and other required documents.
Pay the prescribed registration fees.
Submit the form for approval.

Step 7: Obtain PAN, TAN, and GST Registration

During the registration process, you can apply for:

PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) for the company.
GST registration if your business meets the turnover threshold or engages in interstate trade.

Step 8: Receive Certificate of Incorporation

Once the MCA verifies the submitted documents, the company will receive a Certificate of Incorporation (COI). This certificate includes:

Corporate Identity Number (CIN).
Official approval of the company name.
Legal recognition to commence business operations.

Step 9: Open a Company Bank Account

With the Certificate of Incorporation, PAN, and TAN in hand, you can open a bank account in the company’s name. This account will be used for all financial transactions.

Step 10: Comply with Post-Incorporation Formalities

After incorporation, you must comply with various post-registration requirements:

Hold the First Board Meeting within 30 days of incorporation.
Issue share certificates to all shareholders.
Maintain statutory registers and records.
File the annual returns and financial statements with the MCA.
Obtain professional tax registration if applicable.

How IndiaFilings Helps You Register a Company in India

At IndiaFilings, we offer expert assistance in registering any type of company under the Companies Act, 2013. Our team provides end-to-end support throughout the registration process, ensuring compliance with all legal requirements. Our Services Include:

Business Consultation: Choose the right structure based on your business goals.
Document Preparation: We assist in filing the MOA and AOA with the Registrar of Companies.
Tax Registrations: Get your GST, PAN, and TAN registrations completed.
Post-Incorporation Compliance: We help with annual filings, compliance reports, and tax submissions.

Conclusion

The definition of a company in law provides a foundation for understanding its structure, purpose, and operations. Under the Companies Act, 2013, companies are recognized as separate legal entities with specific rights and obligations. The key features, such as limited liability, perpetual succession, and professional management, make companies an ideal structure for businesses aiming for growth and stability. Recognizing the types and characteristics of companies helps businesses select the appropriate structure to suit their operational needs and ensure compliance with Indian law. At IndiaFilings, we are ready to assist you with every step of the registration process. Let us help you choose the right structure and register your company effortlessly, ensuring compliance with the Companies Act, 2013 and other regulations.