Origin of Companies
The existence of company form of organisation can be traced to the period of Roman Empire and British rule in 16th and 17th century. The Joint Stock Companies came into existence in India during the 17th century, and later in 1850 the first Companies Act was passed in our country and the concept of limited liability was first introduced in India in the year 1957. The growth of companies all over the world is prominent since industrial revolution and geographical discoveries.
The historical East India Company was a typical example of a Joint Stock Company followed by Chartered Bank of India, Chartered Bank of Australia; and many more companies with huge investments and large scale operations evolved till Companies Act of India was finalised in 1956. The Companies Act, 1956 governs the establishment, operations and expansions of any company in India.
These are types of companies that come into existence when a special Charter or Royal Charter is granted by a King or a Queen or the Head of a country. Eg. East India Company, Chartered Bank of Australia, China etc. Such companies rarely exist in our country today. Such a Royal Charter empowers the company to an unrestricted corporate capacity within the jurisdiction of the state.
These are companies that are established by passing special and specific Acts at the Parliament. This is done mainly to regulate the working of certain companies in the national interest. Reserve Bank of India, Bank of India, and State Bank of India, Life Insurance Corporation is examples of Statutory Companies.
Registered Companies: –
These are companies that are incorporated in India under the Companies Act, 1956. These are formed and registered with the Registrar of Companies under the provisions of the Companies Act.
On the basis of limit to liability, these companies may be classified into the following three categories.
a. Companies that are limited by shares.
b. Companies that are limited by guarantee.
c. Unlimited Companies
a. Companies limited by shares
The share holders of such companies enjoy limit to the liability of the company in the event of its winding up, to the extent of the unpaid value of the shares only, if any. They will not be asked to pay anything more than the fully paid up value of the share.
b. Companies limited by guarantee
The company may be registered in one of the two forms;
i) Companies limited by guarantee having no share capital.
ii) Companies limited by guarantee having share capital.
The members in case of the former type agree to pay at the time of winding up agreed sums as stipulated in the Memorandum of Association.
The members in case of the latter type are liable to pay the unpaid value of share capital and in addition the amount of guarantee that they had agreed to pay while becoming shareholders in the event of winding up of the company.
These companies are also known as guarantee companies and are usually formed to promote art, sports, education, charity etc.
c. Unlimited Companies
These are companies, the members of which have no limit on the liability in the event of winding up. In case the assets of the company are insufficient to raise funds to clear the external liabilities of the company, the shareholders may be asked to pay from their personal properties in order to set off the company’s liabilities.
The companies limited by shares and guarantees may be classified into two categories.
(i) Private Companies
(ii) Public Companies
(iii) Private Companies :- According to the Companies Act, a Private Company is one which is formed by at least 2 persons, and which:
a. restricts the number of members to 50
b. restricts invitation to public for subscriptions towards shares or debentures.
c. restricts transfer of shares.
(ii) Public Companies: –
The Companies Act does not give a direct or clear definition of a Public Company. It states that all the Companies that do not follow the three restrictions to be followed by a Private Company are Public Companies. Also, there must be a minimum of seven members to start a Public Company.
In addition to the above mentioned types of companies there are the following types of companies.
a. Government Companies:
Sec. 617 of the Companies Act defines a Government Company as one in which not less than 51% of the paid-up share capital is held by the Central or State Government or partly by both central and state Governments.
b. Foreign Companies:
Foreign Companies are companies incorporated outside the country but have transactions in places within India. These companies transact business in India in accordance with the regulations laid down by the Indian Companies Act as far as their operations within India are concerned.
c. Holding Companies:
A Holding Company is a company that holds more than 51% of the Registered Capital of another company. Since they are the major shareholders, they have the right of appointing or removing directors of the company whose shares are held by the Holding Company.
d. Subsidiary Companies:
Subsidiary Companies are companies whose shares are held by another company to the extent of 50% or above its nominal value of share capital.
Difference between Private Company and Public Company
The Private Companies differ from the Public Companies in various aspects of their incorporation, working and operations. The Private Companies enjoy more benefits when compared to Public Companies. The following are some of the differences:
Steps in Promotion:
Promotion is a process which involves execution of work in, several phases namely.
a.Discovery of a business opportunity.
b.Conduct of preliminary investigation
a. Discovery of business opportunity:
The incorporation of a company starts when a few business opportunities are discovered. The promoters have to choose the appropriate idea by making rough estimate of the proposition.
b. Conduct of preliminary investigation:
The promoters then conduct a study on the feasibility of the project, an estimated output, likely turnover, working capital requirement, investment requirements etc. The promoters may take the assistance of professional experts in the conduct of preliminary investigation to ensure minimum errors.
The next stage is to collect the necessary equipments, land, men, material, money and managerial ability. This stage also includes the initial spade work made by the promoters in the form of entering into contractual agreements whenever necessary, to make the project a viable proposition and to make an early beginning of the activity of a Company.
After deciding the business proposition, conducting preliminary investigations, assembling resources, the promoters have to prepare the financial estimates and ways and means of raising the same. Usually the promoter directs his efforts by issue of prospectus inviting public to subscribe for the shares of the company, by arranging the underwriters and to raise initial funds from all the promoters.
Selection of Name
To enable the company to enter into preliminary contracts, it is necessary for the promoters to select a name for the company. There is no restriction on choosing of a name except that it should not resemble the name of an existing company, should not carry the Government name or emblem (Unless a Government Company) and should not be objected by anyone with respect to its proposed name.
To ensure the same, an application is to be submitted to the Department of Company Law Administration, Government of India through the Registrar of Companies in the concerned state where the registered office is to be situated.