A company is a group of individuals incorporated under the company act.
Several common characteristics of incoporated companies are given below.
• An institution incorporated under the company act.
• It is a legal entity separate from its membership.
• There is continuous existence.
• Owners have limited liability
• Management is done by the board of directors
Several advantages of companies are given below
• A large amount of capital can be collected
• Large scale businesses can be started
• Business activities can be carried by enrolling skilled managers
• Investors can be recruited because of limited liability.
• Death or resignation of a shareholder will not affect the existence of the business
• Shares are transferrable.
• Human resources at a high level can be recruited
Several disadvantages of companies are given below
• Numerous rules and regulations
• Have to follow a complex procedure to start the business and a cost is involved in it.
• Minor shareholders have little power since the voting power depends on the number of
shares.
• Taxes should be paid on the profits of the company and also on the dividends received by
the shareholders.
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Companies should be registered under the company act of the relevant country.
Companies in Sri Lanka should be incorporated under the Company Act No. 7 of 2007
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Documents to be forwarded to the registrar of companies for the incorporation of a
company
• Application for registration
• Articles of Association
• Declaration from each of the initial directors giving their consent to act as a director.
• Declaration from the initial secretary to act as the secretary, to the company.
The following companies can be incorporated according to the Company Act No.7 of 2007
• Limited companies
• Private limited companies
• Public limited companies
• Listed companies
• Non-listed companies
• Off shore companies
• Unlimited companies
• Companies limited by guarantee
• Foreign companies
The following criteria are used to compare the companies
• Number of members
• Liability
• Supplying of capital
• Shares
• Debentures
• Management
Limited companies are companies in which the liability of the shareholders are
limited to the amount of money they paid as agreed to pay, for their shares.` These are also known as the companies limited by shares.
Several characteristics of a private limited company are given below.
• Minimum number of members is one and the maximum is fifty. The shareholders
employed in the company are not included in the above maximum number.
• Minimum number of directors is 01 and the maximum is unlimited
• Issuing of shares to the public in not allowed.
• Dividends can be distributed with the consent of all the shareholders without a
solvency test.
