As per Section 3 of the Act, the company means a company formed and registered under the Act, or an existing

company formed and registered under any of the previous Company Laws. Various types of companies: (a) Companies limited by shares (b) Companies limited by guarantees (c) Unlimited companies

Main Characteristic Features of a Company An Incorporated Association (a) For incorporating a public company, the minimum number of seven is required, with no upper limit stipulated. (b) In the case of private company, however, the minimum number of two and a maximum number of 50 is prescribed in the Act.

(c) But, if an association of more than 10 persons in the case of a banking business, and more than 20 in case of any other business, which are not registered as a company under Act or under any other law for the time being in force, shall be deemed to be an illegal association.

An Artificial Person

As a company is incorporated under the sanction of law, it is not a human being like us. But then, it can sue and be sued in its own name, as we all can. That is why, it is known as an artificial person and not a real one.

Common Seal Further, as the company is an artificial person, it cannot sign on its own. The common seal of a company is, therefore, known as its official signature on the documents. And its such Directors, who are authorised on this behalf by its Board, affix the common seal on its behalf, under their own signatures, too, which means the documents are, in fact, signed by the company. The common seal may be affixed on the documents like the shares and debentures of the company, power of attorney, sale deed , lease deed, debenture trust deed, deed of mortgage, agreement of pledge, hypothecation and guarantee, all documents which attract stamp duty, and so on.

Common Seal In the case the company has its offices in foreign countries (i.e. outside India), it is required to keep the exact copies (reproduction) of its common seal (i.e. replica of the common seal) at such places for the purpose of affixing the same. The place(s) where it may be used should be specified, under the respective powers conferred under the Articles of the Company. Further, the seal may be affixed in a foreign country even by a holder of the power of attorney, issued on this behalf, under the common seal of the company.

A Separate Legal Entity

A company is an artificial person; it is so by virtue of being a separate legal entity.

Limited Liability

In a limited company, limited by shares, the liabilities of the shareholders are limited only upto the extent of their respective shares in the company; and their other assets cannot be acquired to pay the debts of the company, if such debt exceeds the total value of their shareholdings. In the case of an unlimited company the position will be otherwise.

A Separate Property

In the eye of law, the shareholders cannot be deemed to be the part owners of the property of the company. He is only given certain rights by law, like `to vote or attend meetings, to receive the dividends periodically, and so on.

Transferability of Shares

As the property and business of a company is separate from its members, the shares of a public company may be transferred any number of times from one person to another, without any restrictions in this regard, as per the provisions in the Articles of the company. However, in the case of private companies, there are some restrictions.

Perpetual Existence (Company Never Dies)

Company never dies; it lives for ever; unless wound up voluntarily or either with the intervention and order of the Court.

May Sue and be Sued in Its Own Name

As a company is incorporated under the sanction of law, it is not a human being like us. But then, it may sue and be sued in its own name, as we all can, as it has a separate entity of its own, recognised by law. Further, it can open a bank account, can enter into an agreement, and can exercise all the powers pertaining to the attainment of its objects given in tits Memorandum of Association.

Nationality and Domicile

A company being a person (though not a natural person but only an artificial person) has a nationality and a domicile.

No Fundamental Rights

But a company does not enjoy any fundamental rights, under the constitution of India, as a natural person (human being) enjoys, as it is not a real person or citizen.

Lifting of a Corporate Veil

In the case of a dishonest and fraudulent use of the facility of incorporation, the corporate veil is lifted by law, and the law identifies the person (member) who is behind such dishonest and fraudulent use of the facility of incorporation.

A Company, Limited by Shares, is a registered company wherein the liability of its shareholders is limited by its Memorandum of Association upto the maximum amount of the paid up shares, or upto the extent of the amount of unpaid shares, if any, held by them. The unpaid amount on the shares may be called up at any time during the lifetime of the company or at the time of its winding up.

A company, limited by guarantees, is a registered company wherein the liability of its shareholders is limited by its Memorandum of Association upto such amount as the members will respectively undertake to the Memorandum to contribute to the assets of the company in the event of its being wound up. Such company is known as the guarantee company. Here, the liability of the members of the guarantee company is limited to the extent of the specific sum stipulated in the Memorandum. The amount so guaranteed may be called up by the company from the members only at the time of the winding up of the company, and that, too, if the liability of the company exceeds its assets.

Further, a guarantee company does not have any share capital. Instead, the working funds, if required, are raised from different sources like the fees, charges, donations, subsidies, endowments, grants, subscriptions and so on. Such a company is generally established for promoting art, science, culture, charity. sport, commerce, or for such other similar purposes.

A company, limited by shares as also by guarantees, is a synthesis (hybrid) form of company with the combined elements of both the shares and the guarantees companies. In an unlimited company, the liabilities of the shareholders of such companies are not limited upto the share capital only, as is the case with limited liability companies. Instead, in this case, the liabilities of the shareholders are unlimited. In the case of winding up of the company, the members of such companies are liable to the full extent of their total assets to meet the liability of the company. However, the shareholders are not liable to the creditors of the company. The company is liable to the creditors, instead.

A private company may be converted into a Public Company in the following manner: (a) In a general meeting, the company must pass a special resolution altering its Articles in such a manner that they no longer include the provisions of Section 3 (1) (iii), which are required to be included in the Articles in the case of a private company. On the date such resolution is passed, the company cease to be a private company, and it thereafter becomes a public company.

A private company may be converted into a Public Company in the following manner: (b) In case the number of the members of a private company happens to be less than seven, steps must be taken to increase such number to at least seven. This is so because, a public company is required to have a minimum number of seven members. Further, the number of its directors should also be increased to at least three, if it was having only two directors earlier, as was required in the case while it was a private company. This should be done within six months.

A private company may be converted into a Public Company in the following manner: (c) The word Private appearing before the word Limited in its name must be deleted. (d) Within 30 days of the passing of the special resolution altering the Articles, the company is required to file with the respective Registrar of Companies the following documents: (i) A printed or type-written copy of the special resolution, and (ii) A prospectus or a statement in lieu of the prospectus. There is no specific, direct or express provision for the conversion of a public company into a private company in the Act, except with reference to the provisions of Section 31 (1).

A public company may be converted into a private company by following the procedures as follows: (a)In a general meeting, the company must pass a special resolution for altering its Articles so as to include therein the required restrictions, limitations and prohibitions, as also to delete any provisions that may be inconsistent with the restrictions. For example, a private company has to impose certain restrictions in regard to the transferability of its shares. (b)The word Private should be added before the word Limited in its name.

A public company may be converted into a private company by following the procedures as follows: (c)The company is required to obtain the approval of the Central Government to the alteration in the Article for the purpose of converting the public company into a private company. (d)Within a period of one month from the date of the receipt of the order of approval from the Central Government, a printed copy of the altered articles must be filed with the Registrar of companies concerned. (e)Further, within 30 days of the passing of the special resolution, a printed or type-written copy of the special resolution must be filed with the Registrar of companies concerned.

In the cases where a company holds control over the other company, it is known as the holding company. And the company over which it has the control is referred to as its subsidiary company.

A company is deemed to be under the control of another company in the following circumstances: (a) If that other company controls the composition of the Board of Directors, or (b)(i)If that other company holds more than half in the nominal (face) value of its equity share capital. (ii)But in the case of the Company have preference shareholders, before the commencement of this Act, enjoying voting rights with that of the equity shareholders, for the purpose of the control of the company, the holding company must enjoy more than half of such total voting rights (power).

A company is deemed to be under the control of another company in the following circumstances: (c)If it happens to be a subsidiary company, under the control of (another) third company, which itself is the subsidiary of the holding (controlling) company, then the company will be the subsidiary company of the holding company.

One-Man Company is the company wherein one person alone owns almost all the shares (almost the entire share capital) of the company and just say only very few shares are given to a very few other persons in very little quantity. This may be the case in both private and public companies. For example the Solomon and Solomon Company Limited.

The entire procedures of formation of a company may be broadly divided into the following three main steps: (a) Promotion (b) Registration (c) Floatation

The ter promotion ert i t the reli i r teps that are taken f r the registrati n and fl atati n f the pany. The persons ho take the harge and responsi ility of promoting the ompany are referred to as the promoters of the ompany. The promoter may e an indi idual, association, syndicate, partnership or company.

Any seven or more persons in the case of a public company, and any t o or more persons (not exceeding members) in the case of a private company, associated for any lawful purpose may, by subscribing their names to a emorandum of Association, and otherwise complying with requirements of the Act in respect of registration, form an incorporated company, with or without limited liability.

The following three documents are required to be submitted to the Registrar of Companies of the State in which the registered office of the Company is to be situated for the purpose of the registration: (a) Memorandum of the company (b) Articles of the company, if any (c) The agreement, if any, which the company proposes to enter into with any individual, for the appointment as its managing or whole time director or manger

The documents mentioned at (a) and (b) above, are to be signed by any seven or more persons in the case of a public company, and any two or more persons (not exceeding 50 members) in the case of a private company. However, certain types of companies are not required to frame their own Articles of Association. In such cases, the Regulations for Management of a Company Limited by Shares (given in Table A of schedule 1 to the Companies Act 1956), may be adopted.

A declaration must be filed with the Registrar of companies along with the Memorandum and Articles. This is referred to as the Statutory Declaration of Compliance. A company cannot be registered with a name which, in the opinion of the Central Government, is undesirable. For example:
(i)If the name is identical with, or it too nearly resembles the name by which a company is already registered.

(ii) If the proposed name differs from the name of an existing company simply in the addition or subtraction of the word like New, Modern, Nav, and so on. (iii) If the proposed name closely resembles the popular or abbreviated version of, or the nick names of, any well known and reputed company, such as RIL, RNRL, SAIL, Hindalco, BHEL, etc. (iv) If it connotes the Government participation or patronage unless circumstances justify it; for example National, Union, Central, President, Rashtrapati and so on. Therefore, the promoters will be well advised to first ascertain from the Registrar of Companies regarding the availability (suitability) of the proposed name of the company. For this purpose, three names, in order of priority, must be filed with the Registrar of Companies.

Though not required for the Registration of the company, the following two documents are also submitted with the Registrar of Companies, along with the aforementioned other documents: (a) Address of the registered office of the company (b) Particulars regarding the directors, manager and secretary, if any These two documents are required to be submitted within 30 days of the registration of the company.

After the aforementioned documents have been filed with the Registrar of Companies, and the required fees have been deposited in his office), the Registrar will, if he is satisfied, enter the name of the company on the Register of Companies, maintained by him for the purpose. Thereafter, he will issue a Certificate of Incorporation under his signature in proof (token) of the registration of the company on the date noted thereon.

Immediately on registration of the company, the company comes into existence as a legal person, different (distinct) from the members of the company who constitute it. It comes into existence with effect from the earliest moment of the day of incorporation mentioned in the Certificate of Incorporation. It has all the rights and liabilities from that very moment as is the case with the natural person, competent to enter into a contract. Such Certificate of Incorporation is considered to be a conclusive proof (evidence) to the effect that all the requirements of the Act in regard to the registration and of the matters precedent and incidental thereto have been complied with.

After the company has been registered with the Registrar of Companies, and it has received the Certificate of Incorporation, it is now ready to initiate the process of its formation. That is, it can proceed with the process of raising of the capital, sufficient to commence its business, and to carry it on in a satisfactory manner.

A public company can raise the share capital from the public, after issuing the prospectus. But a private company cannot raise its share capital from the public, and accordingly, it is not required to issue any prospectus, either. It must, instead, approach its friends and relatives for raising the share capital by personal approach and arrangement.

Further, it is obligatory on the part of the public companies to take either of the following two steps: (a) To issue a prospectus in case the members of the public are to be invited to subscribe to its share capital. (b) To file a statement in lieu of the prospectus with the Registrar of Companies, in the cases where the capital has been raised from friends and relatives by private arrangement. This must, however, be done at least three days before the allotment of the shares.

Certificate to Commence Business Exempts the private companies from obtaining the Certificate to Commence Business. Thus, it can commence its business immediately on obtaining the Certificate of Incorporation from the Registrar of Companies. But, it is compulsory for the public Companies to obtain the Certificate to Commence Business before it can commence its business. This certificate can be obtained from the Registrar of Companies only after the floatation of the company.