KINDS OF COMPANIES An incorporated company is one which is formed for the purpose of carrying on a business and is incorporated under

the Companies Act, 1956, or some earlier Companies Acts. The various inds of companies which are recogni!ed by the Companies Act, 1956 are as follows" 1. #ublic Company limited by shares 2. #ublic company limited by guarantee, and $a% having a share capital $b% not having a share capital 3. #ublic &nlimited companies $a% having a share capital $b% not having a share capital 4. #rivate Companies limited by shares 5. #rivate Companies limited by guarantee, and $a% having a share capital $b% not having a share capital 6. #ublic &nlimited companies $a% having a share capital $b% not having a share capital A company may also be a foreign company or a holding company. 'n the basis of liability, companies may be classified into 1. Companies with imite! ia"i it#. $hese ma# "e% $a% Companies limited by shares:- (ere, the liability of the members is limited to the unpaid value of the shares. )n the case of winding up of the company, the members are liable to the e*tent of that amount. If the shares are fully paid the liability of the members holding such shares is nil. $b% Companies limited by guarantee:- +here the liability of the members is limited to the fi*ed amount which the members underta e to contribute to the assets of the company in the event of its winding up, the company is called a company limited by guarantee. These companies are formed for the promotion of art, science, culture or for some similar purpose. They may or may not have a share capital. 2. Companies with &n imite! ia"i it# A company without the limited liability is nown as an unlimited company. )n case of such a company, as every member is liable for the debts of the company, as in an ordinary partnership, in proportion to his nearest in the company. An unlimited company may or may not have a share capital. )f it has a share capital, it may be a public company or a private company. )t must have its own articles of association. &nder section ,-, a company registered with unlimited liability may register itself as a limited company. 'n registration, the .egistrar shall close the former registration of the company. The registration of an unlimited company as a limited company shall not affect any debts/ liabilities entered into by or on behalf of the company before the registration may be duly enforced. P'i(ate )ompan# an! p&" i) )ompan# 1. P'i(ate )ompan# *Se). 3+1, +iii,A private company means a company which has the minimum paid up capital of .s.1,00,000 or such higher paid up capital, as may be prescribed by the Central 1overnment and which by its Articles" restricts the right to transfer its shares, if any/ 2imits the number of its members to 50 $not including its employee numbers%/ #rohibits any invitation to the public to subscribe for any share in, or debentures of, the company/ #rohibits any invitation or acceptance of deposits from persons other than its $a% 3irectors, or their relatives/ $b% 4embers Note. 5oint6holders of the shares are treated as a single member. -. P&" i) Compan#. *Se). 3 +1, +iv,A public company means a company which $a% is not a private company $b% has a minimum paid up capital of .s.5,00,000 or such higher paid up capital as may be prescribed by the Central 1overnment. $c% is a private company which is a subsidiary of a company which is not a private company. Note. A public limited company may be a listed or an unlisted public company.

S No 1.

A listed company is one which has any of its securities listed in any recogni!ed stoc e*change. +here a private company or a public company fails to enhance its paid up capital in the manner as specified in 7ec. ,$i% $iii% or 7ec.,$i% $iv%, such a company shall be deemed to be a defunct company and its name shall be struc off from the register by the .egistrar. Notes. 1. A private company may be without share capital. 2. A company registered under 7ec.-5 shall not be re8uired to have minimum paid up capital. 3. .estrictions on transferability do not amount to total ban on transferability of shares. 4. The numbers of debenture holders may e*ceed 50, but there must not be any invitation to the public to subscribe for debentures. 5. The members in a private company may be private and9 or public companies or other bodies corporate. DIS$INC$ION /E$0EEN A P1I2A$E COMPAN3 AND P4/5IC COMPAN3. /asis o6 P'i(ate Compan# P&" i) Compan# Di66e'en)e No. o6 Mem"e's The minimum and ma*imum numbers of members in a private company are - and 50 respectively. A private company should have at least - directors. The right to transfer the shares is restricted by the articles. A private company by its Article prohibits any invitation to the public to subscribe for any share and debentures of the company. The directors are not re8uired to file any consent to act as a director with the .egistrar. A public company should have at least ; members. There is no limit on ma*imum number in a public company. A public company is re8uired to have at least , directors. 7hares are freely transferable. A public company invites general public to subscribe the shares and debentures of the company. The directors must file with the registrar a consent to act as director or sign the 4emorandum of Association or contract for their 8ualification shares. )f the articles do not provide for a larger 8uorum, it shall be 5 members personally present. Total managerial remuneration in a public company cannot e*ceed 11 percent of net profits.

2. 3. 4

N&m"e' o6 Di'e)to's $'ans6e'a"i it# o6 sha'es P&" i) o66e'in9

5.

1est'i)tions on appointment o6 !i'e)to's

6.

:&o'&m

&nless the articles provides for a larger 8uorum it shall be - members personally present. There is no restriction as to payment of managerial remuneration $i.e. payment of salary, commissions etc.% to the directors. )t en:oys some special privileges li e minimum number of members and director issue of right shares, holding of statutory meeting, etc.

7.

Mana9e'ia 1em&ne'ation

8. Spe)ia P'i(i e9es

)t en:oys to such privileges.

Spe)ia p'i(i e9es 6o' a p'i(ate )ompan# )t may have only two members. )t need not have more than - directors.

)t need not eep inde* of members. )t need not issue or file with the registrar a prospectus. )t can commence allotment before the minimum subscription is subscribed for or paid. )t can commence business immediately on incorporation. )t need not hold a statutory meeting. 3irectors of a private company are not re8uired to have any share 8ualification. )ts director can vote on a contract in which he is interested. The directorship in a private company is not to be counted while computing the ma*imum number of directorships which a person may have.

Con(e'sion o6 a p'i(ate )ompan# into a p&" i) )ompan# A private company may become a public company by default or choice. Con(e'sion "# De6a& t +here a default is made by a private company in complying with the basic re8uirements of a private company as to restriction on6 Transfer of shares/ 4a*imum number of members/ )nvitation to the public to subscribe for shares or debentures/ Any invitation or acceptance of deposits from persons other than members, directors or their relatives. )t shall cease to be entitled to have privileges and the e*emptions conferred by or under the Companies Act. The whole of the Act would than apply as if it were not a private company. Con(e'sion "# Choi)e +Se).44, )f a private company alters its articles by a special resolution in such a manner that they no longer contain such provisions which ma e it a private company, it shall be file with the .egistrar within the ,0 days, either a prospectus or statement in lieu of prospectus. )t shall also" Ta e steps to raise its membership to at least ; if it is below that number on that date of conversion and also increase the number of directors to more than -. Alter the regulations contained in the articles which are inconsistent with those of a public company. Note. 7ection <, deals with the breach of conditions re8uired of a private company whereas 7ec. << applies to deliberate amendment of the articles by a private company. Con(e'sion o6 a p&" i) )ompan# into a p'i(ate )ompan# The companies act does not prevent the conversion of a public company into private company by altering its articles by a special resolution. )t involves following steps" 1. A public company may be converted into a private company by passing a special resolution. -. The special resolution should be passed to change the Articles of the company so as to include the conditions as prescribed in 7ec. , $i% $iii% which ma e a company private company. ,. =o alteration in the Articles can be made to convert the public company into a private company without the approval of the Central 1ovt. The application is to be made within the , months from the passing of special resolution. <. +here the alteration has been approved by the Central 1overnment, a printed copy of the Articles as altered shall be filed by the company with the .egistrar within the one month of the date of receipt of approval. Asso)iation not 6o' p'o6it. +Se).25, 1. 7ec. -5 of the companies Act, 1956 deals with the power of Central 1overnment to permit a charitable or the other company to be registered without the use of word limited or private limited to its name. -. &nder this 7ection, where it is proved to the satisfaction of the Central 1overnment, that the association" )s about to be formed as a limited company for promoting" % Commerce % Art, % 7cience % .eligion % Charity % Any other useful ob:ect. > )ntends to apply % its profits, if any

% other income in promoting its ob:ects, and > prohibits the payment of any dividend to its members. ,. A partnership firm may be a member of an association not for profit. <. A licence may be granted by the Central 1overnment on such conditions and sub:ect to such regulations if thin s fit, and those conditions and regulations shall be binding on the association to which the licence is granted. 2icence may be revo ed by the Central 1overnment at any time. 5. An Association ma es default in complying with the re8uirements of 7ec. -5$9%, it shall be punishable with the fine which may e*tend to .s.5,000 for every day during which the default continues. 6. 7uch an association, if Central 1overnment directs and to the e*tent specified in the direction, be e*empt from such of the provisions of the Companies Act, as may be specified therein. ;. The Association may thereupon be registered accordingly, and on registration it shall en:oy all the privileges, and be sub:ected to all the obligations, of the limited companies. ?. An association licensed under 7ec. -5 cannot alter its ob:ect clause without the previous approval of the Central 1overnment. A!(anta9es o6 in)o'po'ation o6 s&)h asso)iations. The association gains in stability, public estimation and credit. )t becomes a body corporate with perpetual succession. )t can have a common seal. )t can buy, sell and hold property in its own name. +ithout the intervention of the trustees it can contract, and ta e and defend legal proceedings in its own name. )ts affairs can be conducted more efficiently. ;o !in9 an! S&"si!ia'# Companies. +Se). 4, 1. > A company is nown as holding company of the another company, if it has control over that other company. > A company is deemed to be a holding company of another if, but only if, that other company is subsidiary. A company is nown to be subsidiary company in following cases" +here a holding company controls the composition of @oard of 3irectors of another company, the latter company becomes subsidiary. +here a holding company holds more than half in the value of e8uity share capital of another company. +here a company is subsidiary of another company which itself subsidiary of controlling company. The former company becomes subsidiary of controlling company. P'ohi"ition o a'9e pa'tne'ships o' i e9a asso)iations +Se). 11, Meanin9. A company, association or partnership is deemed to be an illegal association or a large partnership under the Companies Act, 1956 if 1. The number of persons carrying on business is more than 10 persons for ban ing business/ -0 persons for any other business -. )t is formed for the purpose of earning profits ,. )t is not registered under Companies Act, 1956. <. )t is not formed under )ndian 2aw. Conse<&en)es o6 i e9a asso)iation. These are as follows" 1. Personal liability: Avery member of an illegal association is personally liable for all liabilities incurred in the business, and is punishable with the fine which may e*tend to .s.10,000. -. Contracts An illegal association cannot enter into a contract, nor can it sue any member or outsider, not even if the company is subse8uently registered. )t can not sue or be sued for it6s debts due it or from it. =o member of this association can sue any other member in respect of any matter connected with the association.

<

0in!in9 &p An illegal association cannot be wound up under the companies act either at the instance of % a creditor % a member/ or % the association itself Note. There is a penalty for improper use of word B2imitedC and B#rivate 2imitedC of a fine up to .s.500 for every day upon which that name has been used. $&nder 7ec. 6,1%. . P&" i) Finan)ia Instit&tions 1. The following financial institutions shall be regarded. Dor the purpose of companies Act, as public financial institutions, namely" )C)C) The )ndustrial Dinance Corporation of )ndia $)DC)% The &nit Trust of )ndia $&T)% 2ife )nsurance Corporation of )ndia $2)C% )ndustrial 3evelopment @an of )ndia $)3@)% -. The Central 1overnment may specify any other institution to be a public financial institution. @ut no institution shall be so specified unless6 )t has been established or constituted by or under any Central Act, or =ot less than 51 percent of the paid up capital of such an institutions is held or controlled by the Central 1overnment. The Central 1overnment has so far specified ,? institutions to be public financial institutions. )mportant among them are as follows" The )ndustrial .econstruction @an of )ndia $).@)% 1eneral )nsurance Corporation of )ndia =ational )nsurance Company 2imited =ew )ndia Assurance Company 2imited =ational (ousing @an A*port6)mport @an of )ndia 7mall )ndustries 3evelopment @an of )ndia O66i)e' who is in !e6a& t +Se). 5, The e*pression Bofficer who is in defaultC means all the following officers of a company namely" 1. the managing director or directors. A managing director pleaded that he was no longer a managing director when the complaint was filed, the court held that the material date was not the date of filing of the complaint but that of committing the offence, i.e. the date of issuing the cheque [Sri anth !"S# v. $a%shmi &inanciers' !()))#)* Comp. Cas. +,( !-P#. -. the whole time director or directors ,. the manager <. the secretary 5. any person in accordance with whose directions or instructions, directors are accustomed to act. 6. any person charged by the board of directors with responsibility of complying with any provision, provided the person so charged has given his consent in this behalf to the board of directors/ ;. +here any company does not have any of the officers specified in the clauses $a% to $c%, any director who may be specified by the board of directors in this behalf or where no director is so specified, all the directors. +here a person has neither been managing director nor has been involved in the normal course of the business, he is relieved of the criminal liability E/. 0an1udiah v. 2. "ovindan' 3egistrar of Companies !()*4# 5) Comp. Cas. +54 !6om.#. Notes. 7ec. 5 is applicable to both public and private companies. The officer could not be prosecuted for defaults relating to the period before his :oining E C.F. 7iva #rasad v. .'C $199;% ?? Comp. Cases <-0G )f there is a managing or whole time director ort manager, it would be against the principal of natural :ustice and fair dealings if the proceedings are launched ,.

against ordinary directors without e*amining their involvement in default E1. Fi:ayala shmi v. 7A@) $-000% 100 Comp. Cases ;-6 G 1e ati(e. +Se). 6, A person is deemed to be a relative of another if They are members of (indu &ndivided Damily $(&D% They are husband and wife/ or The one is related to other in the manner indicated in 7chedule )6A to the Act. 1. S)he!& e I%A Fathe' DatherCs father DatherCs mother Mothe' 7tep mother/ 4otherCs mother/ 4otherCs father Son 7tep son 7onCs wife 7onCs son 7onCs sonCs wife 7onCs daughter 7onCs daughter husband Da&9hte' 7tep daughter 3aughterCs husband 3aughterCs son 3aughterCs sonCs wife 3aughterCs daughter 3aughterCs daughterCs husband /'othe' 7tep brother @rotherCs wife Siste' 7tep sister 7isterCs husband

2.

3.

4.

5.

6.

Notes. 1. +ifeCs brother is not included in the above list of relatives. -. The term relative is relevant in following cases" % definition of a private company E7ec. , $i% $iii%G % power of Central 1overnment to prohibit the appointment of sole selling agents in certain cases E7ec. -9<6 AAG % 2oans to directors E7ec. -95G % @oardCs sanction to be re8uired for certain contracts in which particular directors are interested $7ec. -9;% % 3isclosure of interest by director $7ec. -99% % 3irector, etc, not to hold office or place of profit $7ec. ,1<%