A company is a natural legal entity made up of associations and groups of people working together to achieve a common goal. It can be a commercial or industrial company. Different types of businesses are taxed differently. Therefore, corporate taxation defines its type. Some of the main definitions of a company are as follows:
Table of Contents
- Definition of Company
- Key Features of a Company
- Types of Companies
- FAQs : Frequently Asked Questions
Definition of Company
Definition of a Company: As per Indian Act 2013
“Incorporated body, which is an artificial legal entity, an independent legal entity with indefinite legal succession, having a common seal in its signature and a share capital consisting of transferable shares and limited liability”.
Definition of a Company; As per US Legal
“A legal entity is a joint stock company, partnership, association, corporation, trust, or organized group of individuals, whether incorporated or not, who (in its official capacity) is the trustee of all the foregoing services, it may be a trustee or similar officer or liquidation agent.”
Definition of a Company: As per the British
“A company is a legal entity established under the Companies Act. It may be a limited or unlimited company, a private or public company, a limited liability company or joint stock company, or a community interest company.”
Key Features of a Company
The following are the key features of the company:
Legal Artificial Person
The law treats the company as a legal artificial person because it has its name and bank account.
It can also own property in its name, sue other companies and individuals, and cooperate with other companies.
Carry out all activities that a person can legally carry out. The company is good at it. Therefore, it functions as an artificial individual.
A legal entity means that it is completely independent of those who control its business. In other words, the company is not responsible if the member fails to repay the debt. The same applies to companies. Shareholders do not have to pay the company’s debts if the company cannot pay its creditors.
A company starts its business when it is registered under the law and the Companies Act. The company registration process is time-consuming. This should include your articles of incorporation, board of directors, share price and shareholders, name, office, phone number, address, and other legal documents.
A shareholder’s liability is limited to the share price only. A corporation is a stock. On the other hand, in a guaranteed limited liability company, the depositor’s stake is like an asset in the company. If the company goes bankrupt, shareholders must pay a small amount to cover the company’s losses.
Since it is known that the corporation is an artificial corporation, it is stamped with a seal or seal with the company name and address. This stamp will be like a company signature. Seals and company seals are used to confirm and approve various documents.
Unlike an owner, partnership, or other forms of business, a company is not dependent on an owner, board of directors, shareholders, or employees. A lot of people come and go in the company, but they stay. Therefore, the existence of the company is more stable.
Types of Companies
Companies can be categorized by different types such as Responsibilities, Taxes, Membership Sharing, and Administration. Some of these classifications are listed below:
Classification Based on Liabilities
Companies: Limited by Shares
As the name suggests, the company’s liability is limited to each shareholder’s share price. Partner’s personal assets are not affected. Their liability is limited to the company up to its share price.
A limited liability company can be public or private.
Companies: Limited by Guarantee
A limited liability company does not issue shares and has no shareholders. They are typically non-profit organizations. For commercial purposes, the company distributes it to its members, unless it is a non-profit organization. If the company goes bankrupt, its liability is limited to the amount previously stipulated in the company’s deed of incorporation. A guarantor is a shareholder of a limited liability company.
As the name suggests, a shareholder’s liability is not limited to but goes beyond the share price they own. If the company fails to pay its debts to its creditors, it may lose its assets. There are not many unlimited companies because it involves a lot of risks.
Classification Based on Members
Companies: One Person
A one-person company is an Indian concept where s/he can form a company by one person without partners, a board of directors, or shareholders. With OPC (One Person Company) you have all the benefits of a sole proprietorship, including You don’t have to share your interests with others. Take your own risks without needing the approval of others. Like a company, your liability is limited.
An OPC has some differences from a limited liability company, such as The Articles of Incorporation should state the name of the person responsible after you die. The minimum capital to start OPC is 100,000.
ARADO Farms, VISHRUT Biotech, and HCARE Holistic Enterprise are well-known One Person companies.
A private company is a company that does not sell its shares to the public, like a public company. The number of shares is restricted to close members only. However, although members can transfer their shares to anyone, they cannot be made available to the public.
A privately held company is also known as an unlisted company. Some people think that private companies are small because they are not listed.
Large companies such as Dell (hardware and engineering), Virginia Atlantic (airline), PricewaterhouseCoopers (business supplier and service company), Mars (food and beverage), and John Lewis Partnership (retail). These are all private companies doing business all over the world. A public company is a company that offers shares or stocks to the public. Shares of a joint-stock company can be traded freely without restrictions. Stocks of listed companies are traded on the stock exchange.
In England, a limited company must have at least two directors or shareholders. It then falls into the public company category. It should have a total equity value of £50,000.
When investors buy shares in a company, they become shareholders of the company. Some companies are private at first and later become public companies after complying with all mandatory legal requirements.
Google, F5 Networks, Chevron Corporation, and Procter & Gamble Company are public companies. They used to be private companies too. The reason companies go from private to public is that they need capital to expand their operations.
Classification Based on Control
A country’s economy plays a very important role in managing GDP and indices. A state-owned enterprise is an enterprise that holds 51% of the company’s share capital. The company offers the remaining 49% of its shares to the public and individuals.
Mixed Ownership Company is also the name used for government-owned enterprises. Looking at the management and hierarchy of government and the technical capabilities of the private sector, there is a nice mix of public and private sectors. Heavy Industries Taxila, Industrial Development Bank, Faisalabad Electric Supply Company, Karachi Urban Transport Corporation, PTCL, and Oil and Gas Development Company are examples of government-owned enterprises.
Holding & Subsidiary Companies
A holding company is a parent company that manages the operations of its subsidiaries. Control means that the holding company has full selection and election of the board of directors and owns all the shareholders of the subsidiary. Subsidiaries can be determined after independence.
Subsidiaries can be for-profit or non-profit organizations. West’s Encyclopaedia of American Law Affiliate in 2008, Thompson and Thompson, and The Global Tutor are examples of holding companies and affiliates.
An associate is a business valuation firm in which one company owns significant voting right in another company. The percentage of voting rights is usually 20-50%, with more than 50% being subsidiaries. Less than 50%, owners are not required to consolidate the financial statements of affiliates. Above 50%, the financial statements must be consolidated, and Associates consider the balance sheet an asset.
Forming a public or private company is a very long process and requires a lot of paperwork. But the company will help you raise the money. You may not be able to procure without it. Before you take the step of running a business, it’s a good idea to know the different types of businesses and which type is best for you.
Further Reading: Click on the below link to read further relevant articles.
- What is Net Worth?
- What is Asset Management?
- What is Asset Management Company?
- What is Asset & Liability
- What is Debit & Credit
For more such articles on Finance & Accountings pay a visit at www.thefinancialart.com
FAQs : Frequently Asked Questions
What is the company explain?
A company is a legal entity formed by a group of individuals to conduct and operate a commercial or industrial business.
What is the introduction of the company?
A company is a voluntary association of individuals formed for business, profit-making or charitable purposes. These individuals contribute to the capital by purchasing split shares
What are the 3 types of companies?
Sole proprietorship, Corporation, & Partnership are the three types of companies.
What’s the difference between a business and a company?
Businesses have unlimited liability. This means that the owner can be personally sued by creditors. A company, on the other hand, has limited liability. No director or shareholder is personally liable if sued by a creditor.
What is the difference between a company and a factory?
The Difference between Company and Factory – Meaning
The company as a Legal Entity means an institution established to operate an industrial or commercial organization. Companies can become multinational. This means that it operates in multiple countries. A factory, by contrast, represents a place where production-related work is done.
Is the company a legal person?
A company is an “independent legal entity” that has its own identity distinct from its members. As a legal entity, a company may, among other things, own property in its own name, sue or be sued in its own name, and may also enjoy permanent legal succession.
Is a company an Organisation?
An organization is a larger form, usually made up of many companies. A company is just an organization, but an organization is more than just a company. An industry is a merger of companies in the same niche of business. Company, corporation, and business are synonyms for “company”.
Is a small business a company?
A small business is defined as a privately held company, partnership, or sole proprietorship with fewer employees and fewer annual revenues than a full-size corporation or business.
Can Two Companies Have the Same Name?
Yes. However, certain conditions must be met to avoid trademark infringement and to verify who is the rightful owner of the name. These requirements include:
- Are the companies in the same industry or geographical location?
- Which company was the first to use the name?
- Which company registered the name first?
What is company valuation?
Valuation is a quantitative process of determining the fair value of an asset, investment, or company. In general, a company can be valued on its own on an absolute basis, or else on a relative basis compared to other similar companies or assets.
What are company shares?
A company’s capital is divided into a finite number of small equal units. One unit is called a share. Simply put, shares are ownership percentages of a company or financial assets. Investors who hold shares in a company are known as shareholders.
What is Company Secretary?
The Company Secretary is an in-house legal expert; corporate compliance officer, and Specialist in corporate law, securities law, capital markets, and corporate governance. Chief Advisor to the Board of Directors on Corporate Governance Best Practices. Responsible for all regulatory compliance of the company.
What is company turnover?
Turnover is an accounting concept that calculates how fast a company does business. Most often, sales are used to understand how quickly a business collects accounts receivable in cash or how quickly a business sells inventory.