There are various types of companies that you may get registered in India. But where lies the difference? How do you differentiate between each one of them? What are the perks that one offers over the other? We are here to solve all your doubts to the best extent and provide you with personalized legal advisory services related to your business entity.
What do you mean by a Company?
A company is a legal entity formed by a group of people who intend to carry out a certain business with pre-defined objectives. In India, it is governed by Companies Act, 2013.
Core features of a company
Separate Legal entity
The identity of a company is separate from that of its owners,unlike sole proprietorship.
Since the company is a separate entity, its existence is unaffected by the death, insanity, insolvency, or transfer of ownership of the owners.
Unlike sole proprietorship or partnership, the owners enjoy the perks of limited liability, i.e. it is limited to the extent of capital contributed by them. Their personal property cannot be used to pay off the business debts.
Transferrability of ownership
In the case of a company, the entire capital is divided into smaller units known as shares. These shares are freely transferrable, unaffected by the operations of the company. A company allows easy buying and selling of shares.
The management of a company is looked after by a separate group of individuals known as ‘Board of Directors’. Thus, owners may or may not be a part of the management of the business.
All the contracts entered into by the company are stamped with a common seal. It represents the official approval of the company. Any document that does not contain the common seal, may not be said to be authentic.
Now, let’s address a very common question.
Why a Company over other forms of business entities?
The simple answer to this is, the large pool of funds that is facilitated by the company. Due to the individual value of a share being minimal, the capital is divided into large number of shares. This allows many people to become the shareholders, thus, expanding the source of funds. The risk is commensurate to the capital provided. Moreover, a company enjoys perpetual succession due to which its functioning is unaffected by the transfer of ownership!
A company can be classified into various distinct categories on the basis of its ownership criteria, the motive of the business (commercial or social), authorised capital, etc. The major classification made is into Private Limited Company and Public Limited Company.
How is a Private Company different from Public Company?
In a PRIVATE Company, the ownership is privately held by the shareholders. Even though the shares can be transferred, the company cannot get listed on a stock exchange for free trading. Such companies are not bound to release their financial reports publicly and are not accountable to the public.
There is a minimum of 2 shareholders and maximum of 200 shareholders.
A private company can commence its business after obtaining the certificate of incorporation.
Unlike a public company, it is not required to reach a minimum subscription level to allot its shares.
There is a requirement of at least two directors.
The company is necessitated to add ‘Private Limited’ at the end of its name.
Whereas, in a PUBLIC company, the ownership is open for the public. The company is listed on a stock exchange and it issues prospectus (or may use other methods) to invite subscription from the public. It is required to release its financial reports publicly, since it holds accountability towards its existing as well as potential investors.
Minimum number of shareholders is 7, and there is no limit on the maximum shareholders.
It is allowed to commence its business after receiving Certificate of commencement of business (after certificate of incorporation).
It is required to reach a level of minimum subscription (as per the authorised capital) to issue the shares to the interested shareholders.
There must be at least three directors.
The company is required to add ‘limited’ at the end of its name.
Why should you form Private Company over a Public Company?
LONG TERM GROWTH
The most important reason for choosing a private company is that it is not required to publish its records and reports publicly. It is not accountable to the public. This allows the company to focus on long-term growth rather than frequent earnings that must be paid as dividend to the shareholders of the company.
The company functions smoothly, and has greater flexibility due to the lack of strict regulations as imposed on a public company.
EASE OF COMMENCEMENT
There is ease of commencement, since it can start its operations immediately after having two shareholders, and receiving certificate of incorporation.
No requirement of holding statutory meetings, as is required for a public company.
We at VakilGiri, provide you with the best and the most affordable legal services in getting your business registered. Our other services include trademark registration, choosing a business plan, procuring funds, etc. Come become a part of the legal family where we provide a kick start to your business!