What is a Corporation?
Companies that operate with distinct legal identities from their owners can also be referred to as corporations. The corporation itself can sue and be sued, independent of the people who own it. This structure offers several advantages. Owners enjoy limited liability, meaning their personal assets are protected in case of business debts or bankruptcy. Their financial liability is limited to the amount they have invested in the company's shares. Additionally, corporations have a perpetual existence, separate from the lifespans of the owners. The business can continue to perform and expand even if ownership changes hands. To formalize its actions, the corporation uses a common seal for official documents.
How Corporations Work
A corporation must establish a board of directors before commencing operations. This board is elected by shareholders during the annual general meeting, with each shareholder entitled to one vote per share. While shareholders are not involved in daily operations, they can serve as board members or executive officers. The board of directors represents shareholders, making crucial decisions and setting policies for the corporation's management and operations. These directors have a fiduciary duty to act in the best interests of both the shareholders and the corporation.
Types of Corporations in India
The primary categories of corporations in India are as follows:
Based on Liability
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Limited Liability Companies (LLPs): The liability of shareholders is limited to their investment. This is the most common type.
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Private Limited Company: Restricted to a maximum of 200 members, shares cannot be publicly offered.
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Public Limited Company: Can have a minimum of seven shareholders, shares can be offered to the public.
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Unlimited Company: Shareholders have unlimited liability for the company's debts. This is a rare form.
Based on Membership
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One Person Company (OPC): A single individual can incorporate and own a company.
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Company Limited by Guarantee: Members guarantee a specific amount to be paid in case of winding up. Common for non-profit organizations.
Based on Nature of Business
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Section 8 Company: Formed for non-profit purposes, with profits used for promoting social causes. Often referred to as Non-Government Organizations (NGOs).
Other Classifications
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Holding Company: Owns shares in other companies to control them.
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Subsidiary Company: Controlled by a holding company.
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Small, Medium, and Micro Companies: Categorized based on turnover and number of employees.