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Meaning and Nature of Company

A company is a legal entity that is formed under the provisions of the Companies Act, 2013 in India. The meaning and nature of a company are critical aspects of company law in India, as it governs the legal rights and obligations of the company and its stakeholders. This essay aims to provide a comprehensive understanding of the meaning and nature of a company in company law in India.

Meaning of a Company:

The term ‘company’ refers to a business organization that is established under the provisions of the Companies Act, 2013. The Companies Act, 2013 defines a company as an “association of persons, formed and registered under this Act or an existing company,” which is “a legal person separate and distinct from its members.” Thus, a company is a separate legal entity with its own identity, rights, and obligations, which are distinct from those of its members.

The nature of a company is such that it is a separate legal entity from its members. This means that the company can own property, enter into contracts, sue and be sued in its name, and enjoy perpetual succession, irrespective of any changes in its membership. The liability of the members is limited to the extent of their share capital or guarantee, which they have agreed to contribute to the company.

Types of Companies:

There are various types of companies in India, which are classified based on their nature, liability, and ownership. The most common types of companies are:

  1. Private Limited Company: A private limited company is a type of company in which the number of members is limited to 200. The liability of the members is limited to the extent of their share capital, and the transfer of shares is restricted. A private limited company is not allowed to raise capital from the public and is required to use the words ‘Private Limited’ after its name.
  2. Public Limited Company: A public limited company is a type of company that is allowed to raise capital from the public through the issuance of shares. The minimum number of members required to form a public limited company is seven, and there is no limit to the maximum number of members. The liability of the members is limited to the extent of their share capital, and the shares of a public limited company are freely transferable.
  3. One Person Company: A One Person Company is a new concept in India that allows a single person to form a company. The liability of the member is limited to the extent of their share capital, and the member has the power to appoint a nominee in case of their death. The name of the company should end with the words ‘One Person Company.’
  4. Limited Liability Partnership (LLP): An LLP is a type of company in which the liability of the partners is limited to the extent of their contribution to the company. An LLP is a hybrid between a partnership and a company, as it combines the benefits of limited liability with the flexibility of a partnership.

Nature of a Company:

The nature of a company is such that it is a separate legal entity from its members. This means that the company can own property, enter into contracts, sue and be sued in its name, and enjoy perpetual succession, irrespective of any changes in its membership. The liability of the members is limited to the extent of their share capital or guarantee, which they have agreed to contribute to the company.

The nature of a company is also such that it is managed by its Board of Directors, who are appointed by the members of the company. The Board of Directors is responsible for the overall management of the company and is accountable to the members for its actions. The directors of a company have a fiduciary duty towards the company, which means that they must act in the best interests of the company and not use their position for personal gain.

The nature of a company is also such that it can raise capital by issuing shares to the public. This allows the company to raise funds for its business activities without having to rely solely on its members for funding. The shareholders of a company are entitled to receive dividends from the profits earned by the company and have the right to vote on important matters such as the appointment of directors, approval of financial statements, and changes to the company’s articles of association.

Conclusion:

In conclusion, the meaning and nature of a company are critical aspects of company law in India. A company is a separate legal entity with its own identity, rights, and obligations, which are distinct from those of its members. The liability of the members is limited to the extent of their share capital or guarantee, which they have agreed to contribute to the company. The nature of a company is such that it is managed by its Board of Directors, can raise capital by issuing shares to the public, and provides limited liability protection to its members. Understanding the meaning and nature of a company is essential for stakeholders such as shareholders, directors, and creditors, as it governs their legal rights and obligations towards the company.

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