Reviewed by Komal | Updated on Jan 12, 2023


What is a company?

A company is a legal entity established by a group of individuals engaged in business—commercial or industrial—enterprise and its activity. Here are a few points that should be noted in this definition:

  1. Legal identity: A legal identity could be given to any human or non-human entity where it is recognised by law as having legal rights and will be subject to certain obligations.
  2. A person or a group of persons: It is not mandatory to have an association of persons to form a company in India. A single person can also start a one-person company (OPC).

How a company works

A company is basically an artificial person — also known as corporate personhood— in that it is a separate entity from the individuals who own, run, and support its day to day operations. Companies are generally formed to make a profit from business activities, although some may be classified as non-profit organisations.

A company has the same legal rights and responsibilities as a person does, such as the ability to conclude contracts, the right to sue (or sue), borrow money, pay taxes, purchase and own assets, and hire employees.

The advantages of starting a business include diversification of profits, a positive connection between effort and reward, independence of production, and versatility. The drawbacks of starting a company include increased financial burden, increased legal liability, long working hours, employee and administrative personnel responsibilities, and legislation and tax issues.

Types of companies

  1. Private limited company: The minimum number of members to a Private Limited Company is 2, which can be extended to a maximum of 200 at once. The said statutory limit must be complied with at all times.
  2. Public limited company: There is no limit regarding the maximum number of members in the Public Company. However, the minimum number of members are provided. A public company with a total of 7 members is registered. Such public companies are the companies listed on the stock market. These businesses can use public offerings (IPO or FPO) to raise funds from the public.
  3. One-person company: It is one type of private limited company where only one member is required to form a company. In OPC, there is only one member at any time during its existence. Here, this member must be an individual and an Indian resident.

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