1.    To understand the meaning and characteristic features of company form of organisation.
2.    To understand the different kinds of companies
3.    To understand the merits and limitations of company form of organisation

The scientific and technological developments, efficient means of transport and communication and the socio cultural development of the people have necessitated the expansion of business, industry and commerce. The sole proprietorship and partnerships could not cope up with these developments and hence businessmen had to think of newer form of business ownership which resulted in company form of organisation.

Meaning of Company:
            The Companies Act, 1956 defines a company as ‘a company formed and registered under this Act or an existing company. This statutory definition is not very revealing in so far as the characteristics of a company are concerned.
            A more comprehensive definition is that a company is an “artificial person recognized by law with a distinctive name, a common seal, capital comprising of transferable shares, carrying limited liability and having a perpectual succession”.


1.        Legal entity:
Every company has a separate legal entity apart from its members. It is a artificial person and enjoys certain rights and privileges of a natural person.

2.        Limited liability:
The liability of each shareholder is limited to the amount unpaid on their shares irrespective of quantum of loss.
3.        Transferability of shares:
The capital of the company is divided into parts called shares. These share are transferable.

4.        Perpectual succession:
A company has a continued existence its continuity is not affected by death, in solvency or exit of any shareholder. The common saying in this regard is “members may come, members may go, but the company goes on forever”. Law creates it and law alone can dissolve it.

5.        Separate ownership and management:
The management of a company is entrusted with the representatives of the shareholders namely board of directors. Hence, ownership and management are separate.

6.        Common seal:
Every company has a common seal which is used as an emblem on all legal documents. Since the company is an artificial person the seal is used as the signature of the company to sign any document.

7.        Separate property:
A company, being a legal person, is capable of acquiring owing and disposing of property in its own name. it has the right to entre into contracts in its own name.

8.        Capacity to sue:
Being a legal person and enjoying distinct entity, a company is fully competent to sue others and be sued by others.


            These companies were formed in the 19th century under a special charter granted by the King or Queen of England. They do not find any place in India after independence.

            These companies are created by a special Act of the legislature – central or state. Such companies are governed by the provisions of their respective Acts. Example: Reserve Bank of India. The Industrial Finance Corporation of India, LIC, Unit Trust of India etc.


Private Company

     A private company is one which by its articles

a.    Restricts the right of its members to transfer their shares.
b.    Limits the number of its members to fifty.
c.    Prohibits any invitation to the public to subscribe for any shares in or debentures of the company.

Public Company:
            A public company means a company which is not a private company.

Companies limited by shares:
         A company in which the liability of each member is limited upto the face value of shares held by him is known as a company limited by shares.
Companies limited by guarantee:
            These companies are usually formed to set up non-trading organizations like schools, hospitals charitable institutions, etc. The liability of each member in such a company is limited to the amount he has guaranteed to contribute in the event of the winding up of the company.
Unlimited Companies:
            These companies may or may not be registered with a share capital. But the liability of members of these companies is unlimited. Such companies are rarely formed now-a- days.
Government companies:
            A registered company in which not less than 51 per cent of the paid-up share capital is held by a Central Government or by a State Government or jointly by the Central and State Government is known as a Government company.
Foreign companies:
            A company which is incorporate outside India and has established a place business in India is known as a Foreign company.

Holding and subsidiary companies:
                 A company which controls, the composition of the Board of Directors of another company or holds the majority of the equity shares of another company, is known as a holding company. The other company which is to controlled is known as a subsidiary company.
Advantages and limitations of Company form of organisation


1.    Huge financial resources:
The biggest advantage is that the company is able to collect huge financial resources from the public by issue of shares and debentures. There is virtually no limit on the member of persons who can become the members of the public company.

2.    Limited liability:
The members are not liable to pay anything more than the face value of the shares of the company to cover business debts in the event of failure of the company. This limited liability is the another biggest advantage.

3.    Easy transfer of ownership:
The company permits its members to easily transfer their shares and hence the owners of shares need not commit that resources for the entire life of the company.

4.    Stability
The company enjoys perpetual existence and stability. The feature permits it to undertake projects of long duration and offers a greater attraction to the investors to put their resources in the business.

5.    Greater scope for growth and expansion:
The company form affords enormous possibilities of growth and expansion. Since business is conducted on a large scale, it brings the economies of scale especially in the field of production, marketing and finance.

6.    Efficient management:
The company, because of its larger size and greater resources are able to employ people with exceptional abilities and competency. This helps to manage the organisation effectively and efficiently.

7.    Public confidence:
A company organisation enjoys confidence and trust of general public because its activities are made open to public through accounts and annual reports. This public confidence helps a company to raise additional capital, to market its products easily and to undertake growth and expansion programmes.

8.    Democratization of ownership:
This form gives scope for large number of people to become members and they elect their representatives to manage the company. Hence, the ownership is democratized in this form.


1.    Difficult to form:
To form the company, several legal formalities are to be observed. The cost of formation is also quite high.

2.    Lack of incentive:
This actual management of the company is not in the hands of shareholders but it is entrusted to the directors and salaried officials. One cannot expect the officials to take care of the company with as much interest and enthusiasm as the proprietors.

3.    Delay in taking decisions:
Decisions are not taken by one person but through the Board or Directors and till the Board meets, decisions have to be delayed and consequently implementation is also delayed.

4.    High cost of administration:
In the company form of organisation, the cost of management and administration is very high.

5.    Conflict of interest:
A Company organisation witnesses conflicting interests among those who deal with it such as equity shareholders and preference shareholders, directors and shareholders, managers and workers etc.

6.    Oligarchic management:
In lew, the company management may seem to be fully democratic but in practice it is mostly a case oligarchic (controlled by a small group of directors).

The advantages of the company form of organisation outweigh its limitations. Despite its weaknesses this form of organisation is best suited to large sized business activities which require huge capital outlay and maximum stability.