Reviewed by Aug 27, 2020| Updated on
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:
- 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.
- 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
- 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.
- 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.
- 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.