Company: General Introduction

 

A company is a crucial entity in the business world, playing a significant role in the economy by engaging in various commercial activities. For Class XII Commerce students, understanding the basics of a company, including its characteristics, types, formation, and management, is essential. This comprehensive note covers these aspects, providing a foundational understanding of companies.

1. Introduction to Companies

A company is a legal entity formed by a group of individuals to engage in and operate a business—commercial or industrial—enterprise. A company can own property, incur debt, sue and be sued, and enter into contracts under its name. It is recognized as a separate legal entity distinct from its owners, offering limited liability to its shareholders, which means that the personal assets of the shareholders are protected from the company's debts.

2. Characteristics of a Company

• Separate Legal Entity: A company has a legal identity separate from its members and can own property, enter into contracts, and sue or be sued in its name.
• Limited Liability: The liability of the members or shareholders of the company is limited to the amount unpaid on their shares.
• Perpetual Succession: A company continues to exist even if the ownership or management changes. It remains unaffected by the death or departure of any member.
• Transferability of Shares: Shares of a public company are freely transferable, providing liquidity to shareholders.
• Common Seal: Traditionally, the common seal acted as the official signature of a company. However, its importance has diminished over time, and in many jurisdictions, its use is no longer mandatory.
• Separate Property: A company as a legal entity can own, enjoy, and dispose of property in its name.
• Capacity to Sue and Be Sued: A company can sue other parties and be sued in its own name.

3. Types of Companies

• Private Company: A private company restricts the transferability of its shares and limits the number of its members (usually to 200).
• Public Company: A public company can sell its shares to the public and has no limit on the number of shareholders.
• Government Company: A company in which the government holds a majority (at least 51%) of the share capital.
• One Person Company (OPC): A company with only one member.
• Non-Profit Company: A company formed for promoting commerce, art, science, religion, charity, or any other useful object, applying its profits, if any, or other income in promoting its objects.

4. Formation of a Company

The formation of a company involves several steps:

• Promotion: Identifying a business opportunity and taking steps to form a company to capitalize on it.
• Incorporation: Legal process of filing necessary documents with the Registrar of Companies (ROC) to bring the company into existence.
• Subscription of Capital: Raising the required capital for the company through the issuance of shares.
• Commencement of Business: Obtaining the certificate of commencement of business before starting business operations (applicable in certain jurisdictions).

5. Management of a Company

The management of a company is entrusted to the Board of Directors elected by the shareholders. The board oversees the company's overall direction and strategy, making decisions on major company issues. Various committees may be formed to handle specific tasks. The day-to-day operations are managed by executives and managers appointed by the board.

Conclusion

Companies play a pivotal role in the global economy by generating employment, innovating, and contributing to economic growth. Understanding the basics of how companies are formed, operate, and are managed is fundamental for Commerce students. This knowledge not only helps in academic pursuits but also provides a foundation for future business leaders and entrepreneurs.