The legal laws related to any business have changed and will continue to keep changing. New technologies, changing geo political orders and cycles of growth and recession will continue lawmakers to change laws for the better of the public. Let’s try to understand the most important business law i.e. company law.
Anyone who wants to set up his own business has to first form a company and hence Company laws are one of the most important ones to be understood by any aspiring business man. Most countries legal systems categorize company into 3-4 main categories.
Small starts up firms start as Proprietary or Partnership firms. If the venture is started by a single individual then he or she can open a Proprietary firm. It is the simplest form of company. Proprietary companies often equivalent to the individual proprietor himself or herself. Proprietor owns all profits, losses, assets and liabilities. They are very easy to operate. Most governments offer concession to proprietary firms in order to encourage individuals to become entrepreneurs.
Partnership firm is the next category of companies under the Company law. Partners share all profit and losses of the company as per their investment and stake in the company. A big drawback of Partnership firm is limitless liability. In case of bankruptcy, partners have to pay for all the liabilities. But they are easy to operate as compared to a company with limited liability. In China, partnership firms are further categorized as general partnership or limited partnerships.
Limited company is the third large category of company. Shareholders own the company collectively. They are issued shares as token of their investment in the company equity capital. These companies have an authorized capital which is raised by issuing shares to the shareholders. Each share has a face value. The majority shareholders are usually termed as promoters of the company. Shareholders may or may not have voting rights. These companies are usually governed by a board of directors. The directors are either themselves shareholders or representative of shareholders. They have limited liability as compared to a partner in Partnership Company. They share profits or get dividends in proportion of the number of shares held in the company. The board of directors meets in annual or special general meeting and passes resolutions regarding company ownership or operations. Shareholding can be on name of an individual or a different company or any legal entity.
Charity organizations come under a different class of company law. They are usually not for profit and hence have different laws applicable to them so that they can carry out their social work with ease. They are usually run my trustees. Like a limited company, they too have limited liabilities.
Company law varies from country to country. However, most countries have converged on large issues related to the company law and we now have a framework usually accepted by all countries. However, it is imperative that one understands the local business law. It is always good business sense to be on the right side of the law.
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