Legal Definition of a Company

Introduction

Most of us understand a company as a business organization where individuals collaborate to achieve shared goals, typically with the aim of making a profit. However, fewer people are familiar with how the law defines a company. In this article, we’ll delve into the legal definition of a company, its key characteristics, and the various types that exist.
If you’re planning to start a company in India, IndiaFilings offers expert guidance to help you navigate the entire company registration process smoothly.

What is a Company?

A company is a legal entity formed by a group of individuals to conduct business or pursue specific objectives, typically with the aim of earning profit. As a separate legal entity, a company exists independently of its owners or managers. This means it can own property, enter into contracts, sue or be sued—all in its own name. The concept of a company is fundamental to modern commerce, providing a structured and regulated framework for business operations, expansion, and compliance with legal obligations.

This article examines the meaning and legal definition of a company, its core characteristics, and the various types of companies recognized under Indian law, particularly as outlined in the Companies Act, 2013.

Meaning and Legal Definition of a Company

The word company originates from the Latin terms ‘com’ (together) and ‘panis’ (bread), symbolizing a group of people coming together for a shared purpose. In legal terms, a company is a corporate entity recognized by law, distinct from its members, and empowered to engage in business activities in its own name.

Under Section 2(20) of the Companies Act, 2013,

“A company means a company incorporated under this Act or under any previous company law.”

Definitions by Legal Experts

Justice James:
“A company is an association of persons united for a common object.”
Professor Haney:
“A company is an artificial person created by law, having a separate legal entity with perpetual succession and a common seal.”
Lord Lindley:
“By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for some common purpose. The common stock so contributed is denoted in money and is the capital of the company.

Key Characteristics of a Company Under Law

The legal definition of a company brings with it several distinctive characteristics that set it apart from other business structures like sole proprietorships and partnerships. These key features reflect the company’s legal status and operational framework:

1. Artificial Legal Person

A company is created by law and is considered an artificial legal person. It enjoys many of the rights and obligations of a natural person, such as the ability to own property, enter into contracts, and initiate or face legal action. However, since it cannot act physically, it functions through human agents—primarily its Board of Directors.

2. Separate Legal Entity

A company has a legal identity that is independent of its shareholders and directors. This concept, firmly established in the landmark case of Salomon v. Salomon & Co., ensures that the company’s assets and liabilities are distinct from those of its members. As a result, shareholders are not personally liable for the company’s obligations.

3. Limited Liability

One of the most attractive features of a company is limited liability. Shareholders are liable only up to the unpaid value of the shares they hold. This means their personal assets are protected, even if the company incurs significant debt or financial losses.

4. Perpetual Succession

A company’s existence is unaffected by changes in membership, such as the death, insolvency, or resignation of shareholders or directors. It continues to exist until formally dissolved through legal procedures, ensuring business continuity.

5. Transferability of Shares

In a public company, shares can be freely transferred, providing flexibility and liquidity to shareholders. Private companies, however, may restrict the transfer of shares through their Articles of Association.

6. Common Seal (Optional)

Traditionally, a company’s common seal served as its official signature on documents. While the use of a common seal is now optional under the Companies Act, 2013, many companies still adopt it for formal purposes.

7. Representative Management

Companies are managed by a Board of Directors, elected by the shareholders. This structure ensures professional governance and efficient day-to-day operations, with directors acting on behalf of the company.

8. Voluntary Association for Profit

Companies are formed voluntarily by individuals or entities seeking to operate a business with the objective of earning profit. These profits are distributed to shareholders in the form of dividends

Types of Companies Under the Companies Act, 2013

The Companies Act, 2013 classifies companies in India based on various factors such as incorporation, liability, ownership, and control. Below are the primary categories:

A. Based on Incorporation

Chartered Companies: Established by royal charter; these no longer exist in India.
Statutory Companies: Formed through a special Act of Parliament or state legislature.
Example: Reserve Bank of India (RBI).
Registered Companies: Formed under the Companies Act, 2013. These are the most common types in India.

B. Based on Liability

Company Limited by Shares: Members are liable only up to the unpaid value of their shares.
Company Limited by Guarantee: Members agree to pay a specific amount in case the company is wound up.
Unlimited Company: Members have unlimited liability, meaning their personal assets may be used to meet the company’s debts.

C. Based on Number of Members

Private Company:
- Limited to 200 members.
- Cannot invite the public to subscribe for shares.
- Must include “Private Limited” in its name.
Public Company:
- No limit on the number of members.
- Can raise capital by offering shares to the public.
- Must include “Limited” in its name.

D. Based on Control

Holding Company: A company that controls another company by holding a majority of its voting rights or board seats.
Subsidiary Company: A company that is controlled by a holding company.

E. Based on Ownership

Government Company: At least 51% of the paid-up share capital is held by the central or state government.
Non-Government Company: Owned and operated by private individuals or organizations.
Foreign Company: Incorporated outside India but conducting business within India.
One-Person Company (OPC): A type of private company that allows a single individual to enjoy limited liability and manage the business independently.

Why Form a Company? — Key Benefits of Incorporation

Incorporating a company offers numerous strategic and legal advantages for business owners. Some of the most important benefits include:

Limited Liability Protection
Shareholders’ personal assets are safeguarded. They are liable only to the extent of their shareholding in the company.
Separate Legal Identity
A company is a distinct legal entity, enabling it to own property, enter into contracts, and conduct business independently of its owners.
Perpetual Succession
A company continues to exist regardless of changes in ownership or the departure of directors and shareholders.
Easier Access to Capital
Companies can raise funds through the issue of shares, debentures, or by attracting institutional investors.
Tax Advantages
Companies may benefit from lower tax rates, exemptions, and other financial incentives, depending on their structure and industry

How to Start a Company in India – Step-by-Step Guide

Setting up a company in India is a structured process governed by the Companies Act, 2013. Whether forming a Private Limited Company, Public Limited Company, LLP, or One-Person Company (OPC), following the correct legal procedures is essential for a successful registration.

Step 1: Choose the Right Business Structure

Selecting the appropriate legal structure impacts compliance requirements, funding potential, tax liabilities, and overall governance. Common structures include:

Private Limited Company (Pvt. Ltd.)
Public Limited Company
Limited Liability Partnership (LLP)
One-Person Company (OPC)
Sole Proprietorship / Partnership

Step 2: Reserve a Company Name on the MCA Portal

Use the RUN (Reserve Unique Name) service on the Ministry of Corporate Affairs (MCA) portal.
Ensure the name is unique, aligns with the company’s objectives, and complies with naming guidelines under the Companies Act, 2013.
Propose up to two name options for better chances of approval.

Step 3: Obtain a Digital Signature Certificate (DSC)

All directors and shareholders must have a DSC to digitally sign incorporation documents. These can be obtained from government-authorized certifying agencies.

Step 4: Apply for a Director Identification Number (DIN)

Every proposed director must apply for a DIN, which is a unique identification number issued by the MCA.

Step 5: Prepare Incorporation Documents

You’ll need to draft and collect the following documents:

Memorandum of Association (MOA)
Articles of Association (AOA)
Identity and address proof of all directors and shareholders
Registered office proof (e.g., utility bill, rental agreement)

Step 6: File the SPICe+ Form on the MCA Portal

The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form streamlines various services, including company incorporation, PAN/TAN allotment, and GST registration.

Fill the form online via the MCA portal.
Attach all supporting documents.
Pay the applicable government fees.
Submit the application for approval.

Step 7: Obtain PAN, TAN, and GST Registration

During the SPICe+ filing process, you can simultaneously apply for:

PAN (Permanent Account Number)
TAN (Tax Deduction and Collection Account Number)
GST registration, if your business exceeds the turnover threshold or involves interstate trade.

Step 8: Receive Certificate of Incorporation (COI)

Upon approval, the MCA will issue a Certificate of Incorporation, which includes:

The company’s Corporate Identity Number (CIN)
Official recognition of the company name
Legal authorization to commence business

Step 9: Open a Company Bank Account

Use your COI, PAN, and other documents to open a business bank account in the company’s name. This account will be used for all corporate financial transactions.

Step 10: Fulfill Post-Incorporation Requirements

Once the company is registered, certain compliance obligations must be met:

Conduct the first Board meeting within 30 days of incorporation
Issue share certificates to shareholders
Maintain statutory records and registers
File annual returns and financial statements with the MCA
Obtain other registrations (e.g., Professional Tax) if required

How IndiaFilings Can Help You Register a Company in India

IndiaFilings offers comprehensive assistance throughout the company registration process, ensuring full legal compliance and smooth execution. Our services include:

Business Consultation: We help you choose the most suitable legal structure based on your business goals.
Document Preparation: Expert assistance in drafting and filing MOA, AOA, and other required documents.
Tax Registrations: Seamless processing of GST, PAN, and TAN applications.
Post-Incorporation Compliance: Support with annual filings, board meetings, statutory registers, and more

About the Author

Rohit

Rohit is an experienced legal writer who excels at breaking down complex legal concepts into straightforward, actionable advice. His clear insights empower entrepreneurs to navigate legal requirements with confidence, supporting them in starting, managing, and growing their businesses more effectively.

July 13, 2025