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FORMS OF BUSINESS ORGANISATION 45 expensive and complicated process. members can be asked to contribute It involves the preparation of several to the loss only to the extent of the documents and compliance with unpaid amount of share held by them. several legal requirements before it Suppose Akshay is a shareholder in a can start functioning. Incorporation company holding 2,000 shares of Rs.10 of companies is compulsory under each on which he has already paid Rs. The Companies Act 2013 or any of 7 per share. His liability in the event the previous company law, as state of losses or company’s failure to pay earlier. Such companies which are debts can be only up to Rs. 6,000 — the incorporated under companies Act unpaid amount of his share capital (Rs. 1956 or any company law shall be 3 per share on 2,000 shares held in the included in the list of companies. company). Beyond this, he is not liable (iv) Perpetual succession: A company to pay anything towards the debts or being a creation of the law, can be losses of the company. brought to an end only by law. It will (vii) Risk bearing: The risk of losses only cease to exist when a specific in a company is borne by all the share procedure for its closure, called holders. This is unlike the case of sole winding up, is completed. Members may come and members may go, but proprietorship or partnership firm where one or few persons respectively the company continues to exist. bear the losses. In the face of financial (v) Control: The management and difficulties, all shareholders in a company have to contribute to the control of the affairs of the company is undertaken by the Board of Directors, debts to the extent of their shares in which appoints the top management the company’s capital. The risk of loss officials for running the business. The thus gets spread over a large number directors hold a position of immense of shareholders. significance as they are directly accountable to the shareholders for Merits the working of the company. The The company form of organisation shareholders, however, do not have the offers a multitude of advantages, some right to be involved in the day-to-day of which are discussed below. running of the business. (i) Limited liability: The shareholders (vi)  Liability: The liability of the are liable to the extent of the amount members is limited to the extent of unpaid on the shares held by them. the capital contributed by them in a Also, only the assets of the company company. The creditors can use only can be used to settle the debts, leaving the assets of the company to settle theirthe owner’s personal property free from claims since it is the company and not any charge. This reduces the degree of the members that owes the debt. The risk borne by an investor. Reprint 2026-27