Meaning and Definition of Company
A company is a voluntary association of many persons.
It is an artificial person recognized by law with a distinctive name, a common
seal, a common capital and having perpetual succession.
Indian Companies Act 1956 defines a company as “Company
formed and registered under this Act or an existing company”
Characteristics of a company
Refer above
Types of companies: - can be classified --
A. On the basis of
incorporation
1. Chartered company:-incorporated
under a special charter by the Head of the State
2. Statutory company:-created
by special Act in Parliament. Eg: SBI, RBI, LIC
3. Registered company:
- formed and registered in India
with the Registrar of Companies under the provisions of the Companies Act
B. On the basis of
liability of members
1. Company limited by
shares: - here the members’ liability is limited to the extent of value
of shares held by them
2. Company limited by
guarantee: - liability of member is limited to the amount of guarantee
stated in the memorandum
3. Unlimited company:
- liability of member is unlimited
C. On the basis of public
interest
1. Private company:
A private company is one which by its Articles,
a) Limits the number of members to 50
b) Prohibits the invitation to the public to subscribe
its shares or debentures &
c) Restricts the transferability of its shares.
2. Public company:
- one which is not a private company
Minimum Subscription
It is the minimum amount of capital fixed by the
directors to be raised from the members by way of subscription. It must be
stated in the Articles of Association and Prospectus. No allotment of shares
can be made unless the minimum subscription is realized from the applicants of
shares.
The amount of minimum
subscription must cover the following:
1. The purchase price of any
property purchased or to be purchased which is to be met out of the proceeds of
the issue.
2. Preliminary expenses
payable by the company.
3. Commission on shares
payable by the company.
4. Repayment of loans taken
by the company in respect of the above mentioned matters.
5. Working capital
Share Capital
The capital of a company known as share capital and is
divided in to different units with definite value called shares. The main
divisions of share capital are:
1.
Nominal or Registered or Authorized Capital: - the capital with which
accompany is registered is called the authorized capital. It is the maximum
amount of capital that a company can issue.
2. Issued capital: - part of authorized capital which is
offered to the public for subscription. Remaining part is unissued capital
3. Subscribed capital: - part of issued capital for
which applications are received from the public. Remaining part is unsubscribed
capital
4. Called up capital: -The amount on the shares which is
actually demanded by the company to be paid
5. Paid up capital: -part of called up capital which has
actually been paid up by the shareholders. The sum still to be paid is known as
calls in arrears
6. Reserve capital: - that portion of the uncalled capital
which is kept in reserve and which will be called up only on winding up of the
company. A limited company by passing a special resolution may set apart a
portion of the uncalled capital as reserve capital
Types of shares: can be classified in to Preference Shares
and Equity Shares
Preference Shares:
-those shares which carry preferential right in respect of payment of dividend
and repayment of capital in the event of winding up. The rate of dividend on
preference share is fixed. This dividend is payable before any dividend is paid
on equity shares. Preference share may of the following types:
1. Cumulative Preference
Shares: In the case of this type of shares, the arrears of dividend, if
any, are carried forward and paid out of the profits of subsequent years
2. Non- Cumulative
Preference Shares:
3. Participating Preference
Shares: In addition to fixed rate of dividend, these shares have the right
to participate in the surplus profit left after paying a reasonable rate of
dividend on equity shares
4. Non-Participating Preference Shares: These shares get only
fixed rate of dividend
5. Redeemable Preference
Shares: - are repayable after the expiry of the fixed period or at the
option of the company.
6. Convertible Preference
Shares: These shares are given right of conversion into equity shares
within a specified period or at a specified date according to the terms of
issue.
Equity Shares (ordinary
shares)
Equity shares are those which are not preference
shares. They do not carry any preferential right in respect of dividend or repayment
of capital. Dividend is paid after the payment on preference shares. The rate
of dividend is not fixed. Equity shareholders get full voting power.
Sweat Equity Shares
These are equity shares issued by the company to employees
or directors at a discount or for consideration other than cash for providing
know-how or making available rights in the nature of intellectual property
rights or value additions.
Stock
It is a consolidation of fully paid shares. Lord Hatherly
defines “Stock is a set of shares put together in a bundle” It has no definite
value
Differences between Stock
and Shares