CORPORATE LAW

Index
Classification of Companies
 On the basis of Liability
 On the basis of Members
 On the basis of Control or Holding
 Other Kinds of Companies
 Diagrammatic Representation (Chart)
Clauses of Memorandum of Association
 Name Clause
 Situation Clause
 Objects Clause
 Liability Clause
 Capital Clause
 Associate Clause

CLASSIFICATION OF COMPANIES:

A legal entity formed by a group of individuals to engage in and operate a business is termed as a
company.
A company can be classified based on certain criteria. Companies are categorised in the
following ways:

1. Classification of Companies based on Liabilities:

Companies Limited by Shares:
In certain cases, the shareholders of a company pay only a part of the entire value of their
shares. While winding up of the company, their liability is limited to the extent of the
amount not paid by them on shares. For example, the face value of a share of BAC
Company Ltd. is Rs.10. If Mr. A has paid only Rs.7 per share, then he is liable to pay
remaining Rs.3 per share only.

Companies Limited by Guarantee:

The liability of each member is limited to the amount as the may voluntarily undertake
under the MOA to contribute to meet the deficiency in case of winding up of the
company. The guaranteed amount may differ within the members. It cannot be called up
until winding up of the company takes place. These companies may or may not have
 share capital. In case of share capital, there is a dual liability of the members. First they
are required to pay the unpaid amount on the share price and then provide the amount
guaranteed by them in the MOA.

Unlimited Companies:
This is a non-preferrable form of business organisation. The basic essence of a company
form is that the member’s liability is limited which makes it preferrable by many
entrepreneurs and businessmen. However, in this case, the member’s liability is
unlimited. It means that their personal assets may also be used to pay off the company’s
liabilities. This is the reason behind the less popularity of Unlimited Companies.

2. Classification of Companies based on Members:

One Person Companies:
These companies have only one member. However, it is different from sole
proprietorship as the OPC is considered to be a separate legal entity from its
shareholders. There is no minimum capital requirement to incorporate an OPC.

Private Companies:
The private companies can have a minimum of 2 members and a maximum of 200
members. In this form of company, the transferability of shares is restricted. The present
and former employees who hold shares, are considered as members of the company.

Public Companies:
The public companies can have a minimum of 7 members, and the maximum number of
members in a public company is not capped. It means that the maximum no. of members
is unlimited. In this form of company, the transferability of shares is permitted.

3. Classification of Companies based on Control or Holding:

Holding and Subsidiary Companies:
In certain cases, a company’s shares may be held partly or completely by another
company. The company holding these shares is termed as Holding Company.
Similarly, the company whose shares are held by the parent company is termed as the
Subsidiary Company.

Associate Companies:
An associate company is one over which another company exercises a degree of control
which is less than the degree of control exercised over a subsidiary.

4. Other Companies:
Government Companies:
The companies wherein, more than 50% of the share capital is held by either the central
government, or by one or more state government, or jointly by the central government
and one or more state government.

Foreign Companies:
The companies which are incorporated outside India are termed as Foreign Companies.
They may also conduct business in India.

Charitable Companies:
These companies have charitable purpose as their objectives. These are registered under
Section 8 of Companies Act,2013. They perform the operations with the motive of
offering service to the society.

Dormant Company:
It is a company formed for a future project or to hold an asset or intellectual property
without there being any significant accounting transaction or a company which is not
active.

Producer Company:
These companies are based on the cooperative principles of mutual assistance, patronage
and limited return. These companies primarily deal with the produce of its active
members for carrying out any of its specified objects.
CLAUSES OF MEMORANDUM OF ASSOCIATION:
MOA is a legal document. It contains the scope of business activities of the company and also
the information about the shareholding of the company. It is also called the charter of a company.
There are 6 different clauses in Memorandum of Association. They are as follows:
Name Clause:
The individual identification and differentiation from others is crucial for any company. The
name clause consists of the genuine, legal and approved name of the company. The name of a
company is approved by the Registrar of Companies. The company can assign themselves any
name subject to the following restrictions:
 The last words of the company must end with words ‘limited’ or ‘private limited’ as per
the nature of the company. However, if the ROC permits then, these words may also be
omitted from the name.
 Any name which is identical, or closely resembles the name of an existing company, is
undesirable by the Central Government. The company cannot use the name which is
undesirable by the Central Government.
 The name adopted should not violate the provisions of the Emblems and Name Act,
1950.
 The name should not include the words such as co-operative, bank, banking, insurance,
investment, etc unless the circumstances justify.

Along with the restrictions, there are also certain requirements to be followed by the company.
They are:
 Company should paint or affix its name, outside its registered office, and outside every
place where it carries on business.
 Company should have its name engraved in legible characters on its seal.
 Company should provide all the necessary details such as registered office, address,
contact number, etc on every official document such as business letters, letter papers,
billheads, etc.
If there is any default in compliance, then a fine of Rs.1000 per day will be charged to the
company and it will continue until the default is rectified. However, the sum cannot exceed
Rs.1,00,000.

Situation Clause:
It consists of all details regarding the geographical location of the registered office of the
company. It also contains the names of the enrolled Registrars. MOA must contain the name of
the state or union territory where the registered office of the company is situated. It is very
essential to be disclosed due to the following reasons:
  It helps in determining the domicile of the company. It further helps in establishing the
Jurisdiction of the High Court of the State, in which the registered office is situated.
 Usually, the statutory books of the company are kept in their registered office. So, an
address is known to which notices and other communication can be sent.
There is no compliance for the company to carry on the business at their registered office.
However, all official documents are sent to the registered office. Every company needs to have a
registered office within 30 days of their incorporation.

Objects Clause:
It constitutes an integral part of the memorandum. It decides the scope of the operations of the
business. A company cannot perform business beyond the scope of operations mentioned in
Objects Clause of MOA. Any act performed beyond the object mentioned will be ultravired and
void.
Liability Clause:
It mentions the liability of the members of the company. There are different types of liability of
members. Some of them have been discussed in the “Classification of Companies based on
Liability of Members”. It specifies the contribution by each member on winding up of the
company.

Capital Clause:
As the name suggests, it mentions the share capital and its nature. It also mentions the face value
of each share. In case of non- listed companies, the company determine the face value of shares
based on certain factors.
The company needs to state the authorized capital in their MOA. Further, division of registered
share capital into shares of a fixed amount is also required to be given in the memorandum. Each
subscriber must take at least one share and write opposite his name the number of shares he/she
takes.

Association Clause:
This clause states that the persons subscribing their signatures at the end of the memorandum are
desirous of forming themselves into an association in pursuance of the Memorandum. MOA
must be signed by seven or more persons in case of a public company and two or more persons
in case of a private company. The signatures need to be attested by witnesses. All details of the
signatories and witnesses must be recorded. Subscribers are required to pay for these shares after
the company is incorporated. They also need to sign the Articles of Association of the company.