The Companies Act of 1956

Kinds of Companies
 Classification of companies
On the basis of incorporation

Classification of companies:

 Incorporated companies:
Which is formed for the purpose of carrying
a business which is incorporated under
companies act of 1956.
 Unincorporated companies:
These are to all intents and purposes large
Partnerships
Transferable shares
Liability of the members is unlimited
These companies continue even after the
death or insolvency of the members
Maximum number of members 10 in case of
banking business & 20 in case of any other
business

On the basis of incorporation

 Chartered companies:
Incorporated under a special charter
granted by king or queen
 Statutory companies:
Created by special act of legislature
 Registered companies:
Formed and registered under companies
act 1956 or were registered under any of
the earlier companies acts

On the basis of liability

 Companies limited by shares:
Liability of members of a company is
limited by memorandum to the amount, if
any, unpaid on the shares.
 Companies limited by guarantee:
Liability of members of a company is
limited by memorandum to a fixed amounts
which the members contribute at the time
of wound up
 Unlimited companies:
A company without limited liability
On the basis of Member
 Private limited company:
a) Restricts the right to transfer its shares
b) Limits the number of its members to fifty
c) Prohibits any invitation to the public to
subscribe for any shares in, debentures of,
the company

 Public company:
a) Does not restrict the right to transfer its
shares, if any;
b) Does not limit the number of its members
c) Invites public to subscribe for any shares
in, debentures of , the company
Basis Public company Private company

Minimum number 7 2

Maximum number Unlimited 50

Number of At least 3 At least 2

directors

Appointment of Must file consent N/A

directors with registrar

Invitation to Invites public Restricted

subscribe for
shares

Transferability of Free transfer Restricted

shares
Distinction between a public and private company

Foreign company
 It means any company incorporated outside
India Which:
a) after 1st April, 1956,established a place of business
within India, or
b) before 1st April,1956 established a place of
business in India and continued to have an
established place of business within India on the
1st April

Classification of companies:
On the basis of Control
 Holding companies:
A company is deemed to be holding
company if but only if, that other company
is its subsidiary
 Subsidiary companies:
Company is deemed to be subsidiary of
another company in the following:
1. If the composition of board of directors of
the company is controlled by another
company
2. Holding of majority of shares
3. Subsidiary of another subsidiary

On the basis of Ownership

 Government company:
A company in which 51 % of the paid up
share capital is held by central government
and/or by any state government or
governments ,or partly by central
government and partly by one or more
state governments
 Non government company:
controlled and operated by private capital
 Public financial institution
 According to sec 4-A of companies
( Amendment ) act 1974, each of the
financial institutions shall be regarded as a
public financial institution, namely:
i. The industrial credit and investment
corporation of India
ii. The industrial financial corporation of
India
iii. The industrial development bank of India
iv. The life insurance corporation of India
v. The unit trust of India
 Sec 4-A(2) authorize the central
government to specify by notification in
official gazette , any other institution to be
public financial institution , but no
institution shall be so specified unless:
i. It has been established or constituted by
or under any central act or
ii. Not less than 51% of paid up share capital
of such a institution is held or controlled
by the central government
Associations not for profits (sec25)
 The name of the limited company
must end with the word “limited” , in the
case of public company and with the word
“private limited” in the case of private
company
Sec 25, however, permits the registration,
under a license granted by the central
government, of an association not for
profits with limited liability without using
the word “limited” or the words Private
limited to its name.
 The central government may grant
such license to an association where it is
 proved to the satisfaction of the
government that is :
a) Is about to be formed as limited company
for promoting commerce , science,
religion, charity, or any other useful object;
and
b) Intends to apply its profits , if any, or
other income in promoting its objects and
to prohibit the payment of any dividend to
its members
Section 43-A company
 Private company which has become
public company by virtue of sec 43-A but
not treated as public company in all
respects it is a special type of public
company
Features of such a company:
a) it can retain the features of a private
company , viz., restriction on the transfer
 of shares ,limitation on the number of
members to fifty etc
b)Number of members may be below seven
c) The minimum number of directors does
not apply
d)Profit and loss account of the company is
not open for the public