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How should the Legal Structure of your Company Look Like?

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INTRODUCTION

Company is an association of two or more person for filling of common business goal. The definition of companies has been given under Sec 2(20) of Companies Act, 2013 which states that company means any association of person registered under the present or the previous companies act. It is also mentioned as „body corporate‟ because of composition of group of people in it. The status of artificial person and separate legal entity has been given to company.

FEATURES OF COMPANY

  • Incorporated association-Company is considered as an incorporated association of group of people which is registered under the Companies Act, 1956.The incorporation of company is first legal step for recognition. It creates a corporate legal entity and separates the assets of company from owners and members. After the incorporation of company, it has been granted separate legal entity which grants power to enter in contracts, holding properties etc.
  • Separate Legal entity-The Company becomes eligible after the incorporation to hold as a separate legal entity. It bears separate seal and separate assets from the members. The legal identification also grants power of suing and being sued exclusively which does not involve personal liability of members. The existence of company persists even without motives and conduct of members.
  • Limited Liability of Members- This feature carries extreme benefit of performing business under the name of organisation. The company becomes owner of assets and bounded by liabilities after the company gets separate legal entity. The liability of paying off companies‟ debts lie entirely on the company and there is no personal burden on the members. The liability of members is restricted only with the burden of shares taken in the them.
  • Artificial Person-It is considered as an artificial legal person as because of its process of formation is through operation of law. It has been granted legal sanction and registered under law.
  • Perpetual Succession-The company has trait of perpetual existence and succession irrespective of death, lunacy of members. The membership of company can keep on changing and it does not affect the existence and continuity of company. There is no mortality or soul to be preserved of the company.
  • Common Seal-The company functions under common seal and it is the symbol of incorporation. However, it is not mandatory for the company to have common seal. Any important documents of company can be signed by appointed key managerial person or officer after the mutual of consensus of board of directors and shareholders

If the company does not have common seal, then the authorisation can be made by two directors or by director and company secretary.

  • Separation of ownership and management- The Company has proper set of structure .It is owned by group of shareholders who take decision on the behalf of company. The objectives and goals are set by board of shareholders and conveyed to representatives  who are directors of company. The directors appoint several executives for controlling various operations of the company.
  • Transferability of shares-The shares of company are considered as movable property which can be transferred considering the norms of Article of association as per section of 44 of companies Act,2013. The registration of companies does allow the members to sell and investment in shares of company in open market. It provides liquidity to investor and liberty of exiting any time in future.

CLASSIFICATION OF COMPANY

  • On the basis of numbers- Private company and Public Company
  1. Private company-It has been defined under Section 3 (1)(b) of Companies Act. The main feature of private company is that it is restrictive in nature and transfer of shares are limited under Articles of Association. The shares are not available for public at large. The maximum number of members in private company can be 200.The recognizable feature of private company is that it ends with suffix „pvt. Ltd.‟
  2. Public company-It has been defined under 2(71) of Companies Act,2013.All the companies which do not fit in criteria of private companies fall under public company. The main feature of public company is that shares and debentures are available for public at large. They can expand in financial markets by selling equity or debts for raising capital in order for an expansion.
  • On the basis of classification of share-Limited by shares, Limited by guarantee and unlimited liability company

  1. Limited by shares- The liability of members are related with the numbers of shares which are unpaid and held. There will be no liability once the payment is securities is made.
  2. Limited by guarantee- In this type of company, the liability of members is limited to the undertaking they have given under Memorandum of Association. The amount which has been agreed in MOA has to be paid back by members after the winding of company.
  3. Unlimited Liability Company- The reach and expansion of this company is low in Indian market. There is no limit on the amount of liability it can add on members if any debt arises.
  • On the basis of domicile- Indian company and foreign Company

  1. Indian Company- This has been defined under 2(20) of Companies Act,2013. Any company which has been registered under Companies Acts are called Indian Company. The proof of place of business is shown in case of dispute arises.
  2. Foreign Company-Section 2(42) of Companies Act,2013 defines foreign company. Any company which is situated outside India but also has registered place in India. The existence of foreign company can be considered either physically or online.
  • Few other classifications of company- One Man company, Government Company, Holding company, Subsidiary Company

  1. One Man Company-This is company incorporated by single person. It has been came into effect after the enactment of Companies Act,2013. Section 2(62) of the Companies Act,2013 states that a single person can be member/shareholder of the company and a single individual can form a company where director and member are same person.

OPC shall have minimum paid-up share capital of INR 1 lacs. It also restricts the right to transfer its shares. The concept of one Person Company has motivated more people to initiate business.

  1. Government company-This has been defined Section 2(51) of Companies Act, 2013. Any company which has minimum 51% of paid-up share capital held by either state government or central government.
  2. Holding Company-Section 2(46) of Companies Act, 2013 defines holding company. The main purpose of holding company is to hold another company and manage the administration of that company.
  3. Subsidiary Company- Section 2(87) of Companies Act, 2013 defines subsidiary company. The main objective of subsidiary company is that it is secondary of some another company. It has been controlled by parent company.





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