Basics of Business Law
Conduct of business in the twenty first century is very much different from that in the past. And hence the legal landscape too has changed. Here is some basic understanding of the most important law i.e. company law. Company laws are one of the most common and also the most important law that has to be understood by anyone interested in setting up a new business. The new company or the entity has to be formed as per the local prevailing company or corporate laws. Most company laws across countries classify company into 4-5 basic types or classes.
Limited company is the most popular type of company. Companies under this class are owned by one or more shareholders who own a share or shares in the company. Their profits and liability too is limited to the amount of shareholding in the company. If the number of shareholders is limited to usually less then 10, the company is further classified as private limited company. If shareholders exceed this number it becomes a public limited company. Usually public limited types of companies opt for raising capital from the masses by offering them their shares. Such companies then have to comply by various other laws too.
Charitable organizations which are professionally run can also be incorporated as companies. However, they come under a different class than the private and public limited companies. Instead of shareholders, they usually have trustees who together run the trust which in turn runs the charity. These companies are usually not for profits and have liabilities limited to those specified by the trustees during company formation. These companies also fall under different tax laws as compared to pubic limited companies or partnership entities.
Small starts up firms also start as Partnership firms. The owners of the company are termed as the partners of the company. They share profit and losses in proportion to their investment in the company. As compared to the public listed company, partners have to bear higher liabilities in case of insolvency. The amount of liability is usually unlimited. But partnership firms also get a different tax treatment as compared to limited companies.
In countries like China, partnerships are further classified as general partnership or limited partnerships. The latter type can have partners who have limited liabilities and are called as limited partners.
Proprietary firms are the simplest form of company and ideal to start a new business for individuals. These companies have little different identity than the individual owner himself or herself. All profits, losses, assets and liabilities belong to the proprietor. These companies are easy to operate and also are at ease when it comes to compliance under various laws and regulations. Often individuals open limited companies when their proprietor companies are doing well and need more capital for expansion. Most governments offer various incentives to proprietary firms in order to encourage individuals.