This note is only for commerce students. They can refer to it in their exams.
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| Company and its features as per companies act, 2013 |
Meaning of Association
An Association may be an incorporated Association or an unincorporated association. Incorporated Association is a single person distinct from the individual(s) constituting it, Whereas an unincorporated association is a mere collection or aggregation of individuals.
In India, an incorporated association owes its existence either to a special act of parliament or the Companies Act, 2013.
For instance, RBI and Life Insurance Corporation have been formed under a special act of a parliament whereas Hindustan Lever Ltd., Tata iron steel co. Ltd. has been formed under the Companies Act. All of them are incorporated associations.
The trading partnership which is governed by Partnership Act is an example of an unincorporated association.
Word Origin
The word “Company “is derived from the Latin word ("Com" means with or together and "Panis" means bread or meal); originally referred to an association of people who took their meals together.
Definition of Company as per Companies Act, 2013
The term “Company” has been defined under Section 2(20) of the Companies Act, 2013.
As per this, ‘Company’ means a company incorporated under the Companies Act, 2013 or under any of the previous laws relating to Companies.
Q. What does incorporated mean?
Ans. In simple words, “incorporated” means registered in the Companies Act.
Q. What is Ltd or Pvt. Ltd?
Ans. Ltd. means a public company with limited liability. Pvt. ltd means Private Limited with limited liability.
Q. Can I run a company without registration?
Ans. In India, an unregistered company is not a legal entity. It is also not a separate legal entity. Members and company are the same here. It is a normal business entity but is not a company in the eyes of law.
Characteristics of Company
- Separate Legal Entity: Company is a separate legal entity which has its own rights and obligations and also is a legal person in the eyes of law distinct from its members.
- Case law: Saloman v. Saloman & co. Ltd.
- Perpetual Succession: Death, Insolvency or insanity of any members does not affect the continuity of the company. It does not depend upon the life of its members. “Members may come and members may go but the company goes on forever” thus a company never dies.
- Transferability of shares: In the case of a Public Company, Shares are freely transferable without any restrictions. In the case of a Private Company, there is a restriction on the transferability of shares. But it is not prohibited. Shares are treated as movable goods and shares can be transferred in the manner provided in the Articles.
- Separation of ownership and management: Members of the company do not participate in the day to day affairs of the company. The management of the company lies in the hands of elected representatives of the members, commonly called as Board of Directors.
- Separate property: A company can own and enjoy the property in its own name. Members are not owners or co-owner of the company’s property and have no insurable interest in the property of the company.
Advantages of the corporate form of Enterprise
- Has Corporate Personality
- Limited Liability
- Perpetual Succession
- Separate property
- Capacity to sue
Disadvantages of Corporate form of Enterprise
- It has lots of formalities and expenses.
- A company must disclose its true and fair financial position. It has a privacy issue.
- Members do not participate in the business.
- It has a greater social responsibility.
- The greater tax burden in certain cases
- Details winding-up procedure
