Meaning of Company
The word ‘company’ is
derived from the Latin word ‘Com’ which means ‘with or together’ and ‘panis’
which means ‘bread’. Here the word company referred to as an association or
person who took their meal together. The word company ordinarily and literally means
a group of persons associated for any common object such as business, charity,
sports, research etc. The word ‘Company' may be used to represent the
association of persons formed to carry on some business to earn the profit or
to promote Art, Science, Education, Culture, Religion, Sports etc
Definition of Company
Definitions of a company can be divided into the following three parts:
A.
Definitions
given under the Companies Act, 2013.
B.
Definitions
given by well-known authors, and
C.
Definitions
given by well-known justices.
Definitions are given under the Companies Act, 2013
Section 2(20) of
the companies act, 2013 defines a company as “ a company incorporated under this
act or under previous company law.” A company incorporated under any previous
company law means an existing company.
Definitions are given by well-known Authors
"A Corporation
(Company) is by nature, an artificial person created or authorised by the legal
statue for some specific purpose.
Kimball and
Kimball,
"A Company is
an artificial person created by law having a separate entity with a perpetual
succession and a common seal."
Prof. L. H,
Haney,
"The
Corporation (Company) is a creature of state and possesses an entity distinct
from the persons owing its stock or other securities.”
Dr W. R.
Spriegal,
Definitions are given by well-known Justices
"It is an
association of persons who contribute money or money's worth to a common stock
and employ it for some common purpose.'
Lord
Lindley,
"A Corporation
(Joint Stock Company) is an artificial being, invisible, intangible and
existing only in the contemplation of law. Being a mere creation of law, it
possesses only the properties which the charter of its creation confers upon it
either expressly or as incidental to its very existence."
Chief
Justice Marshall,
"Company is an
association of persons united for a common object.”
Justice
James,
Characteristics of a Company
A company has the
following characteristics:
1. Incorporated association: A company is an association of persons associated for a
common purpose. A company must necessarily be incorporated or registered under
Companies Act. A company cannot be unincorporated.
2. Artificial legal person: A company is an artificial legal person. It is brought into
existence by a legal process other than natural birth. A company does not
possess any physical attributes of a natural person. It is invisible,
intangible, immortal and exists only in the eyes of law. It has no body, no
soul, no conscience. It is because of these physical disabilities that a
company is called an artificial person. Secondly, a company is created by law,
directed and controlled under legal provisions and dissolved by law. This legal
protection makes the company a legal person.
3. Separate legal entity: Incorporation of a company clothes it with a legal
personality. The existence of a company is entirely different from the
existence of its members. A company and the members constituting it are totally
different in the eyes of law. The attribute of the separate legal entity of a
company creates some legal consequences as under:
a.
Rights and duties of a company are
different from that of its members: Company is different and its members are different, and
therefore, their rights and duties are different from each other. A company can
sue its shareholders and the shareholders can sue the company. No shareholder
is responsible for the acts done by the company.
b. A company can enter into contracts with
its members: Company
and its members are separate entities. So, they can enter into contracts with
each other, unlike as in the case of sole proprietorship and partnership. They
can be the debtor and creditor for each other.
4. Perpetual succession: Company is immortal, unless dissolved by law. The life of a company
remains unaffected by the life of its members. Its life is not affected by the
death, lunacy, insolvency of its members. Even if all the members of a company
die, the company survives. This magic is known as, "Members come and
members may go, but the company goes on forever."
5. Limited liability of members: The liability of the members of a company is generally
limited. The Companies Act requires every company to state the extent of the
liability of its members in its Memorandum of Association under the Liability
clause. It is also to be stated whether it is limited by shares or by
guarantee.
6. Common Seal: A
company cannot act in person as a human being because it is an artificial
legal person. Company is managed, administered and directed by a Board of
Directors. To identify the works done by such board of directors, a seal is
affixed over all the relevant documents of the company. This seal is known as
"Common Seal". It bears the name of the company. This seal is
equivalent to the signature of the company but it must be verified by at least
two directors or authorised persons for this purpose.
7. Transferability of shares: The capital of a company is divided into shares. Each share
has a nominal value. This nominal value of a share represents the maximum amount
which the shareholder may be held responsible to pay. The shares in a company
are transferable in the manner provided in its Articles of Association. It is
to be noted that the shares of a public company can only be transferred but the
shares of a private company cannot be transferred.
8. Ownership and management of the company are separate: There is the separation of ownership and
management in a company. A company is not managed by its owners. Real owners of
the company are the shareholders who invest their money in the shares of the company. These shareholders are lakhs in number and scattered all over the
country. Therefore, it is not practical for a company to be managed by all
owners. It is entrusted to their elected representatives, known as directors. This
way, the ownership and management of a company are different.
9. Shareholders are not the agents of the company: Shareholders are only the owners of
a company but their entity is different from that of their company. So, they
cannot work as agents for their company. The company is not bound for the work
done by its shareholders.
Advantages of Company
A company is an
incorporated association of persons. It is an artificial legal person, having
an independent legal entity with a perpetual succession, a common seal and
carrying limited liability. Company form of business organization has the
following merits when compared with other forms of business organization, i.e.,
sole proprietorship and partnership:
1) Perpetual succession: A company is created by law and it can be dissolved only by law, if
required. Existence of a company is not affected by the existence of its
members. A company is not affected by the death, lunacy or insolvency of its
members. Even if all the members of a company die, the company goes on.
2) Adequate finance: A company collects its finance by the issue of its shares to a large
number of persons, so it can collect any amount, it requires. Apart from this,
bank and other financial institutions also grant the easy loans and advances to
company,
3) Limited liability of members: Company is a very attractive form of the organization since its
members' liability is limited. They can be held responsible only up to the value
of shares, they have purchased.
4) Transferability of shares: Investors like it very much to invest in the company because
its shares are easily transferable. They can withdraw their investment whenever
they like it by transferring their shares.
5) Democratic set-up: Company is managed in a democratic manner. It is managed by the
representatives elected by its members. Directors have to manage and administer
the company according to the rules framed by the shareholders.
6) Efficient management: The company is not limited to be managed by its owners only. It is
managed by the representatives of its owners, who, of course, can be the
experts of their fields.
7) Scope for expansion: A company can easily be expanded whenever required. Its expansion never
suffers the lack of funds because it can collect required money easily.
8) Necessary for giant projects: Projects and plans requiring huge amount of capital and
skill can be implemented through the company form of organization easily
because all other forms of organization suffer from the drawbacks of limited
capital and skill.
9) Incentives for small savings: Company encourages the small savings of the country because
the nominal value of its shares is very small and these can be purchased by
most of the persons. This way, every citizen of the country may contribute to
the economic growth of the country.
10 Helpful in industrial development: Company organization helps in promoting the
industrial development of the country by making the establishment of big
companies possible.
Disadvantages of Company
Company form of the organization suffers from some drawbacks also, given as under:
1) Legal formalities: A company has to undergo numerous difficult legal formalities at the
time of incorporation, for the routine management and administration and
winding up. So, it is difficult to
establish, manage and dissolve a company.
2) Ownership and management are divorced: A great drawback of the company is its ownership and
management are divorced. It is not managed by who owns it and it is not owned by
who manage it.
3) Slack in management: Separation of ownership and
management creates many problems in the management of a company. It may develop
the differences between directors and shareholders on various points. It is
also seen that the decisions are imposed on the minority by the majority.
4) Exploitation of shareholders' interests: Company is managed by a Board of
Directors who may exploit the company resources in their interest and exploit
the interest of shareholders.
5) Fraud by promoters: Many times, it has been noticed that the promoters of a company cheat
the shareholders by making fraudulent sales and purchases in their own
interests.
6) Delay in decisions: A company has to undergo a pre-decided procedure in taking any decision
and this causes unnecessary delay in the decision-making process. Because of
such delay, the company sometimes misses the golden opportunity.
7) Speculation in securities: Companies' shares and debentures are dealt by the brokers
working in stock exchanges. Stock Exchanges lead to speculation in the value of
securities.
8) Lack of secrecy: A company has to publish its accounts, directors' report and auditors'
report which loses the secrecy of the company.
9) Lack of direct motivation: Company form of the organization suffers from the lack of direct
motivation because its ownership and management are separate.
10 Disadvantages of large scale: A company is generally established for carrying on big
business plans and projects. Therefore, it carries with it all the
disadvantages of large scale trade or production.
