Meaning of company

“Company” in the common usage refers to a voluntary association of

individuals formed for the purpose of attaining a common social or
economic end. Strictly speaking, the term “Company” has no technical
or legal meaning. In the common law, a company is a juristic
personality or legal person separate from its members. Thus, it exists
only in the contemplation of law.
In other words, a company is an artificial or legal person created and
devised by the laws for a variety of purposes such as promotion of
charity, art, research, religion, commerce or business. The company,
just like a natural person possesses similar rights and owes similar
obligations, but has neither a mind nor a body of its own.
Eminent scholars and writers have defined the term. Some of the
definitions are given below:
Definitions of Company
According to Yale Law Journal: “A company is an intricate,
centralized, economic, administrative structure run by professional
managers who hire capital from the investors”.
According to Prof. Haney: “A “company is an incorporated
association which is created by law, having a separate entity with a
perpetual succession and a common seal.”
There are three main activities of a business
1. Merchandising activities. This involve activities deal with
goods in a ready to sell condition.
2. Manufacturing Activities. This involve from purchase to
raw material and put labor and factory overhead on the raw
material and produce a product.
3. Services Activities. This involve banking, education,
insurance and training activities.
Characteristics of a Company
The company has several distinct characteristics; the significant ones
are discussed here:
 Separate Legal Entity: A company is a separate legal entity
from its members who constitute it. It can hold, purchase and sell
properties and enter into contracts in its own name. It is an
artificial legal person who can sue aid be sued. Companies are
owned by shareholders and they elect the Board of Directors, who
run the company. The board in turn selects the management. Thus
the shareholders exercise only indirect control over the affairs of
the company. The separation of ownership from the management
some-times results in a conflict of interests between owners and
management. The best the shareholders can do is to change some
of the directors through vote in the annual general meeting
subsequent to any such conflict.
The concept of separate legal entity was recognized in the famous
case of Solomon vs. Solomon & Co. Ltd.)In this case, Mr.
Solomon floated a company Solomon & Co. Ltd. and sold his
business to the Company for £ 30,000. Seven members of the
company were Solomon, his wife, daughter and four sons. The
purchase consideration of £ 30,000 was paid by the company in
the form of 20,000 equity shares of £ 1 each and £ 10,000 in the
form of debentures. The debentures had a charge on the assets of
the company. One share of £ 1 each was subscribed for in cash by
the remaining six members of his family. After a period of one
year, the company became insolvent and went into liquidation. At
the time of liquidation, the position of the company was roughly
like this : Assets £ 6,000, secured creditors (debentures issued to
Mr. Solomon) £ 10,000 and unsecured creditors £ 7,000. The
unsecured creditors claimed priority over the debenture-holder
(Mr. Solomon) on the ground that Solomon and Solomon & Co.
were one and the same person. Therefore, the assets of the
company should be applied for the payment of their debts. The
lower court held that the company was a mere agent for Solomon
 who had to indemnify it against the losses. Mr. Solomon appealed
in the higher court and the decision was reversed.
It was held that as soon as the company was duly incorporated, it
became, in the eyes of law, a separate and independent person
from its members. Thus, the assets of the company must be
applied in payment of the debentures first in priority to the
unsecured creditors. Thus, unsecured creditors could not get
anything.
 Artificial Legal Person : A company is an artificial legal
person. It is artificial because it is created by a process other than
the natural birth. It comes into existence through the operation of
law. It is a legal person because it exists in the eyes of the law. It
can do a number of things which can be done by a natural person
g. a company can enter into a contract, it can purchase and sell
assets, it can be fined, it can file s s it, and so on. It acts through
the board of directors elected by the members.
 Limited Liability: The principle of limited liability is a feature
as well as a privilege of the corporate form of enterprise. In other
words, the liability of the members is limited. It means that the
shareholders enjoy immunity from liability beyond a certain
limit. A shareholder cannot be called upon to pay anything more
than the unpaid valueof the share that he has undertaken to pay
under a contract between himself and the company.
 Perpetual Succession: As a juristic person, a company enjoys
perpetual succession. In other words, a company never dies, nor
its life depends on the life of its members. Even if all the members
die, it shall not affect the privileges, immunities, estates and
possessions of the company.
 Right to Property: A company, being a legal person has a
right to acquire, possess and dispose of property in its own name.
Its property is not that of the shareholders. Although the members
contribute the capital and assets of company, the property of the
company will not be considered as the joint property of the
members constituting the company.
 Common Seal: The common seal is considered as the Official
Signature of the company. Its common seal must authenticate all
the acts. When common seal is affixed on a document, it is
considered as the authoritative document of the company. The
secretary of the company should keep the seal under lock and key.
He should make use of it only according to the directions of the
Board of Directors.
 Transferability of Shares: The capital of a company is
divided into several small parts known as shares.The primary
objective of joint stock companies is that it should be able to
transfer shares easily. The law also considers the share of a
company as movable property and hence like any other movable
asset, the shareholder can transfer his title over his share to some
other person.
 Capacity to Sue and be Sued: A company being a legal
person, can sue other persons in its corporate name. Similarly,
others can also sue the company in their own name. It can also be
fined for contravening any law but it cannot be imprisoned for a
criminal offense.
 Incorporated Association: A company must be registered
under the prevalent Companies Act. If the number of members in
an association exceeds 50 and the association is formed for
carrying on a business with profit motive, it must be registered
under the Companies Act or any other Indian Law otherwise it
becomes an illegal association. For forming a public company, at
least seven persons and for forming a private company, at least
two persons are required. For forming one person company, as a
private company, only one person is required.
Types of Companies
The basic types of companies are discussed as follows:
(A) On the basis of incorporation: On the basis of incorporation,
companies can be classified as:
(i) Chartered companies
(ii) Statutory companies
(iii) Registered companies
 Chartered companies: The crown in exercise of the royal
prerogative has power to create a corporation by the grant of a
charter to persons assenting to be incorporated. Such companies
or corporations are known as chartered companies. Examples of
this type of companies are Bank of England (1694), East India
Company (1600). The powers and the nature of business of a
chartered company are defined by the charter which incorporates
it. After the country attained independence, these types of
companies do not exist in India.
 Statutory companies: A company may be incorporated by
means of a special Act of the Parliament or any state legislature.
Such companies are called statutory companies, Instances of
statutory companies in India are Reserve Bank of India, the Life
Insurance Corporation of India, and the Food Corporation of
India etc. The provisions of the Companies Act 1956 apply to
statutory companies except where the said provisions are
inconsistent with the provisions of the Act creating them.
Statutory companies are mostly invested with compulsory
powers.
 Registered companies: Companies registered under the
Companies Act 1956, or earlier Companies Acts are called
registered companies. Such companies come into existence when
they are registered under the Companies Act and a certificate of
incorporation is granted to them by the Registrar.
(B) On the basis of liability: On the basis of liability the company
can be classified into:
(i) Companies limited by shares
(ii) Companies limited by guarantee
(iii) Unlimited companies.
 Companies limited by shares: When the liability of the
members of a company is limited to the amount if any unpaid on
the shares, such a company is known as a company limited by
shares. In a company limited by shares the liability of the
members is limited to the amount if any unpaid on the shares
respectively held by them. The liability can be enforced during
existence of the company as well as during the winding up. Where
the shares are fully paid up, no further liability rests on them.
 Companies limited by guarantee: It is a registered
company in which the liability of members is limited to such
amounts as they may respectively undertake by the memorandum
to contribute to the assets of the company in the event of its being
wound up. In the case of such companies the liability of its
members is limited to the amount of guarantee undertaken by
them. Clubs, trade associations, research associations and
societies for promoting various objects are various examples of
guarantee companies.
 Unlimited companies: A company not having a limit on the
liability of its members is termed as unlimited company. In case
of such a company every member is liable for the debts of the
company as in an ordinary partnership in proportion to his interest
in the company. Such companies are not popular in India.
(C) On the basis of number of members:
(i) Private company:A private company means a company which
by its articles of association:
(i) Restricts the right to transfer its shares
(ii) Limits the number of its members to fifty (excluding members who
are or were in the employment of the company) and
(iii) Prohibits any invitation to the public to subscribe for any shares or
debentures of the company.
(iv) Where two or more persons hold one or more shares in a company
jointly, they are treated as a single member. There should be at least
two persons to form a private company and the maximum number of
members in a private company cannot exceed 50. A private limited
company is required to add the words “Private Ltd” at the end of its
name.
(ii) Public company: A public company means a company which is
not a private company. There must be at least seven persons to form a
public company. It is of the essence of a public company that its articles
do not contain provisions restricting the number of its members or
excluding generally the transfer of its shares to the public or prohibiting
any invitation to the public to subscribe for its shares or debentures.
Only the shares of a public company are capable of being dealt in on a
stock exchange.

(D) According to Domicile:

(i) Foreign company: It means a company incorporated outside
India and having a place of business in India. According to Section 591
a foreign company is one incorporated outside India:
(a) Which established a place of business within India after the
commencement of this Act or (b) Which had a place of business within
India before the commencement of this Act and continues to have the
same at the commencement of this Act.
(ii) Indian Companies: A company formed and registered in India
is known as an Indian Company.
(E) Miscellaneous Category:
(i) Government Company: It means any company in which not
less than 51 percent of the paid up share capital is held by the Central
Govt, and/or by any State Government or Governments or partly by the
Central Government and partly by one or more State Governments. The
subsidiary of a Government company is also a Government company.
(ii) Holding and subsidiary companies: A company is known as
the holding company of another company if it has control over another
company. A company is known as subsidiary of another company when
control is exercised by the latter over the former called a subsidiary
company. A company is to be deemed to be subsidiary company of
another
(a) If the other Controls the composition of its Board of directors or
(b) Exercises or controls more than half of its total voting power where
it is an existing company in respect where of the holders of preference
shares issued before the commencement of the Act have the same
voting rights as the holders of equity shares or
(c) In the case of any other company holds more than half in nominal
value of its equity share capital or
(b) If it is a subsidiary of a third company which is subsidiary of the
controlling company.
(iii) One man Company: This is a company in which one man
holds practically the whole of the share capital of the company and in
order to meet the statutory requirement of minimum number of
members, some dummy members hold one or two shares each. The
dummy members are usually nominees of principal shareholder. The
principal shareholder is in a position to enjoy the profits of the business
with limited liability. Such type of companies are perfectly valid and
not illegal.
BENEFITS OF COMPANIES TO THE SOCIETY
The basic objective of business is to develop, produce and supply goods
and services to customers. This has to be done in such a way as to allow
companies to make a profit, which in turn demands far more than just
skills in companies’ own fields and processes. Astute entrepreneurs
often demonstrate an almost intuitive understanding of the synergies
that create success. The social skills of company owners, together with
relationships maintained with customers, suppliers and other business
people, are always vital if companies are to be run well and developed
with a view to the future.
Companies improve their resources by developing materials and ideas.
The goods and services produced must meet demands made by
customers, other companies or public institutions if companies are to
survive. Profitability results when customers are prepared to pay more
for goods and services than it costs to produce them. The ability to
produce this kind of added value – profit – is the basic prerequisite for
business, but it is also a foundation for prosperity in society. Only
profitable companies are sustainable in the long term and capable of
creating goods, services, processes, return on capital, work
opportunities and a tax base. This is what business does better than any
other sector. Hence, companies’ basic commercial operations are the
primary benefit they bring to society.
The role of business in the development of society can be described in
many ways. For a company to progress and develop, it must nurture
relations with its stakeholders, of which there may be many. Some have
a strong influence and are of fundamental importance to the survival of
the company: these include employees, customers and suppliers. The
media, authorities, trade unions and local residents are other
stakeholders with a wide ranging influence.
Companies benefit society by:
 Supplying goods and services that customer cannot, or do not
want to, produce themselves
  Creating jobs for customers, suppliers, distributors and co-
workers. These people make money to support themselves and
their families, pay taxes and use their wages to buy goods and
services.
 Continually developing new goods, services and processes
 Investing in new technologies and in the skills of employees
 Building up and spreading international standards, e.g. for
environmental practices
 Spreading “good practice” in different areas, such as the
environment and workplace safety

HOW COMPANIES CONTRIBUTE TOWARDS

ECONOMIC DEVELOPMENT
Companies plays an influential role in the economic growth and
standard of living of the country. As a start-up founder or small
business owner, you may think that you are simply working hard to
build your own business and provide for yourself and your family. But
you are actually doing a whole lot more for your local community,
state, region, and the country as a whole. Here are the top 7 important
roles an entrepreneur plays in the economic development of a country.
1. Wealth Creation and Sharing: By establishing the business
entity, entrepreneurs invest their own resources and attract capital
(in the form of debt, equity, etc.) from investors, lenders and the
public. This mobilizes public wealth and allows people to benefit
from the success of entrepreneurs and growing businesses. This
kind of pooled capital that results in wealth creation and
distribution is one of the basic imperatives and goals of economic
2. Create Jobs: Entrepreneurs are by nature and definition job
creators, as opposed to job seekers. The simple translation is that
when you become an entrepreneur, there is one less job seeker in
the economy, and then you provide employment for multiple
other job seekers. This kind of job creation by new and existing
businesses is again is one of the basic goals of economic
 development. This is why the Govt. of India has launched
initiatives such as Start-up India to promote and support new
start-ups, and also others like the Make in India initiative to
attract foreign companies and their FDI into the Indian economy.
All this in turn creates a lot of job opportunities, and is helping in
augmenting our standards to a global level.
3. Balanced Regional Development: Entrepreneurs setting up
new businesses and industrial units help with regional
development by locating in less developed and backward areas.
The growth of industries and business in these areas leads to
infrastructure improvements like better roads and rail links,
airports, stable electricity and water supply, schools, hospitals,
shopping malls and other public and private services that would
not otherwise be available.
Every new business that locates in a less developed area will
create both direct and indirect jobs, helping lift regional
economies in many different ways. The combined spending by
all the new employees of the new businesses and the supporting
jobs in other businesses adds to the local and regional economic
output. Both central and state governments promote this kind of
regional development by providing registered MSME businesses
various benefits and concessions.
4. GDP and Per Capita Income: India’s MSME sector,
comprised of 36 million units that provide employment for more
than 80 million people, now accounts for over 37% of the
country’s GDP. Each new addition to these 36 million units
makes use of even more resources like land, labor and capital to
develop products and services that add to the national income,
national product and per capita income of the country. This
growth in GDP and per capita income is again one of the essential
goals of economic development.
5. Standard of Living: Increase in the standard of living of
people in a community is yet another key goal of economic
development. Entrepreneurs again play a key role in increasing
 the standard of living in a community. They do this not just by
creating jobs, but also by developing and adopting innovations
that lead to improvements in the quality of life of their
employees, customers, and other stakeholders in the community.
For example, automation that reduces production costs and
enables faster production will make a business unit more
productive, while also providing its customers with the same
goods at lower prices.
6. Exports: Any growing business will eventually want to get
started with exports to expand their business to foreign markets.
This is an important ingredient of economic development since it
provides access to bigger markets, and leads to currency inflows
and access to the latest cutting-edge technologies and processes
being used in more developed foreign markets. Another key
benefit is that this expansion that leads to more stable business
revenue during economic downturns in the local economy.
7. Community Development: Economic development doesn’t
always translate into community development. Community
development requires infrastructure for education and training,
healthcare, and other public services. For example, you need
highly educated and skilled workers in a community to attract
new businesses. If there are educational institutions, technical
training schools and internship opportunities, that will help build
the pool of educated and skilled workers. A good example of how
this kind of community development can be promoted is Azim
Hashmi Premji, Chairman of Wipro Limited, who donated Rs.
27,514 crores for promoting education through the Azim Premji
Foundation. This foundation works with more than 350,000
schools in eight states across India.
So, there is a very important role for entrepreneurs to spark
economic development by starting new businesses, creating jobs,
and contributing to improvement in various key goals such as
GDP, exports, standard of living, skills development and
community development.
CONCLUSION

Lastly we can say, the efforts that a business makes to increase

its social impact often refer to the impact of company policies,
procedures, practices, and operations on employees, on those
employed by its suppliers, and on communities, cultures, and
society. A business should critically evaluate the impact of its
own practices and policies on employees. A business should also
demand transparency from suppliers to understand where all
supplies were generated and the conditions under which they
were produced. Common activities of a sustainable business
include the use of Fair Trade products (such as coffee in the break
room), avoidance of products that may have been made with
child or forced labour, contributions to solving social problems,
providing fair and safe working conditions, living wages,
insurance and other benefits, and an offering employees a work–
life balance.
The efforts that a business makes to maximize its economic
impact often refer to the economic impact the business has on
communities or societies within which it operates. This does not
refer to the “profit” the company shows on financial statements
but rather refers to how the community or society “profits” from
the presence of the business, which, in turn, will result in
continued profitability for the company. That is, economic
impact refers to the continued prosperity of the business due to
the economic benefit it provides to the community or society.
Common activities include the payment of fair and living wages,
providing positive impacts on the local economy and on local
economic development (job creation, tax dollars, property
values), and assessing the stress or relief created for local public
service systems as a result of the business’s operations.
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