- "Company means a company incorporated under this Act or any previous Company Law." - Section 2(20) of the Companies Act, 2013
- Lord Justice Lindley defines a Company as follows: "It is an association of persons who contribute money or money's worth to a common stock and employ it for some common purpose.''
- "A Company is an artificial person created by law, having separate entity with a perpetual succession and a common seal''. - Prof. Haney
- According to Chief Justice Marshal, "A company is a person, artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence”.
Definitions [9]
Define the following business entities:
Sole Proprietorship
- A sole proprietorship, also known as a solo tradership, individual entrepreneurship, or proprietorship, is a type of business owned and controlled by one person who is the sole recipient of all earnings or losses and is solely responsible for all risks.
- The only owner is personally liable indefinitely.
- All activities are carried out by a single person in a sole proprietorship entity. This sort of sole proprietorship is appropriate for small-scale businesses.
- Some features of a sole trader are:
- Single ownership
- No profit sharing
- Unlimited liability
- No legal formalities to start a business
Define sole proprietorship.
The sole proprietorship is that form of business ownership that is owned and controlled by a single individual. He receives all the profits and risks all of his property in the success or failure of the enterprise.
Define ‘Joint Hindu family business/firm’.
A Joint Hindu Family Business is a family concern that operates under the provisions of the Hindu Law and the Hindu Succession Act 1956. It may be defined as a business organisation which is inherited or owned, conducted and managed by the members of a Hindu undivided family, pointedly under the direction and control of the senior-most member of the family, called karta, for earning profits.
Definition: Joint Hindu Family Business
Under Hindu Law, an HUF is a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. An HUF cannot be created under a contract.
Definition: Partnership
- Section 4 of the Indian Partnership Act, 1932, defines partnership as ''Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.''
- According to Prof. Handy, "Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to earn private gain.
Define the following business entities:
Partnership
A partnership is a form of business in which two or more persons come together to carry on a business and share its profits and losses as per an agreed-upon partnership deed.
Definition: Partnership Deed
The document containing the partnership agreement among partners is called Partnership Deed.
Definition: Joint Stock Company
- “A Joint Stock Company is a voluntary association of individuals for profit having capital divided into transferable Shares, the ownership of which is the condition on membership.” – Prof. L. H. Haney.
- “A Company is a person, artificial, invisible, intangible, and existing only in the eyes of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.” – Chief Justice Marshal
- According to The Companies Act 2013, Section 2 (20), the term “Company” means “a Company incorporated under the Companies Act 2013 or any previous Company law.”
Definition: Company
Key Points
Key Points: Partnership
- Meaning: A partnership is when two or more people join to run a business and share profits as per a mutual agreement.
- Key Features: Based on agreement, profit-sharing, mutual agency, legal limit of 50 partners, and lawful business only.
- Nature: Treated as separate for accounting, but not legally—partners are personally responsible for the firm’s debts.
- Rights of Partners: Take part in business, share profits, check accounts, get interest on loans, and retire with notice.
- Liabilities: Unlimited; partners must use personal assets if needed and can’t keep personal gains made using the firm’s name/assets.
Key Points: Partnership Deed
- Meaning: A written agreement between partners outlining terms—recommended but not compulsory.
- Contents: Includes firm name, partners' details, capital, profit-sharing, interest, salary, etc.
- Purpose: Avoids disputes by clearly defining partners' rights, duties, and liabilities.
- Disputes: Provides rules for admission, retirement, death, and dispute settlement.
- Importance: Ensures smooth functioning, legal clarity, and easy conflict resolution.
Key Points: Joint Stock Company
- Meaning: A Joint Stock Company is a business organisation where ownership is divided into transferable shares held by shareholders.
- Origin: It emerged during the Industrial Revolution to overcome the limitations of partnerships, such as unlimited liability and limited capital, by raising funds from the public.
- Legal Status: A Joint Stock Company is an artificial legal person with a separate legal identity and perpetual succession, created under company law.
- Merits: It provides benefits like large capital, limited liability, expert management, public confidence, and better scope for expansion.
- Types: Companies can be Chartered, Statutory, or Registered, and further classified as Public, Private, Limited, or Unlimited.
Difference Between Partnership and Joint Stock Company
| Basis | Partnership | Joint Stock Company |
|---|---|---|
| Mode of Formation | Formed by agreement; registration is not mandatory. | Formed by registration under the Companies Act. |
| Regulatory Act | Indian Partnership Act, 1932 | Companies Act, 2013 |
| No. of Members | Min 2, Max 50 | Public: Min 7, no max; Private: 2–200; OPC: only 1 |
| Liability | Unlimited, joint and several | Usually limited to share value or guarantee |
| Profit Distribution | As per the Partnership Deed or equally | Declared by directors, approved by shareholders |
| Management | Managed by partners | Managed by the Board of Directors |
| Transfer of Shares | Cannot transfer without the other partners’ consent | Freely transferable (except in private/unlisted companies) |
| Business Scope | Any business agreed by partners | Only as per the Memorandum of Association |
| Winding Up | By agreement or court order | By legal process under the Companies Act, a court order is needed |
| Stability | Affected by the death/retirement of partners | Not affected by changes in shareholders |
Key Points: Concept of Company
- Need: Introduced to overcome drawbacks of sole proprietorship and partnership, like limited capital and unlimited liability.
- Meaning: A company is a legal business setup formed by people contributing capital to run a business, recognised under the Companies Act, 2013.
- Separate Legal Entity: It exists independently from its members; can own property, sign contracts, and face legal action in its own name.
- Limited Liability: Members are responsible only for the unpaid value of their shares; personal assets are protected.
- Perpetual Existence: The company continues even if owners or members change or pass away.
- Transferability & Management: Public company shares can be transferred freely; managed by a Board of Directors, not by all shareholders.
Concepts [23]
- Introduction to Forms of Business Organisation
- Concept of Sole Proprietorship Or Sole Trader
- Characteristics of a Sole Trader
- Merits of Sole Proprietorship Or Sole Trader
- Limitations of Sole Proprietorship Or Sole Trader
- Hindu Undivided Family Business Or Joint Hindu Family Business
- Concept of Partnership
- Merits of Partnership
- Limitations of Partnership
- Types of Partners
- Types of Partnerships Firms
- Registration of a Partnership Firm
- Partnership Deed
- Concept of Cooperative Societies
- Features of Cooperatives
- Merits of Cooperative Society
- Limitations of Cooperative Society
- Types of Cooperative Societies
- Joint Stock Company
- Comparison of Different Forms of Business Organization
- Concept of Company
- Stages for Formation of Company
- Important Document to Be Used in Formation of a Company
