2.

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Lesson 2. Types of Companies

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.2
Lesson 2. Types of Companies

2.Types of Companies
The Company Act,2013 provides for the kinds of companies that can be promoted and
registered under the Act.
PRIVATE COMPANY
Private Company As per Section 2(68) of the Companies Act, 2013, “private company”
means a company having a minimum paid-up share capital as may be prescribed, and which
by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company
jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that the following persons shall not be included in the number of
members;—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be members
after the employment ceased, shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
It must be noted that it is only the number of members that is limited to two hundred. A
private company may issue debentures to any number of persons, the only condition being
that an invitation to the public to subscribe for debentures is prohibited.

Incorporation of a Private company

STEP – I: Apply for Name Approval:
STEP – II: Preparation of Documents for Incorporation of Company:
STEP – III: Fill the Information in Form:
Once all the above mentioned documents/ information are available. Applicant has to fill the
information in the e-form “Spice” INC-32.
Single Window Form:
Earlier if a Person wants to incorporate Company then it has to apply for the DIN, Approval
of the Name availability, Separate form for first Director, Registered office address, PAN,
TAN etc. But this form is a single window for Incorporation of Company.
This form can be used for the following purposes:
 Application of DIN (upto 3 Directors)
 Application for Avaibility of Name
 No need to file separate form for first Director (DIR-12)
 No need to file separate form for address of registered office (INC-22)
 No need to file separate form for PAN & TAN

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.3
Lesson 2. Types of Companies

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.4
Lesson 2. Types of Companies

STEP – IV: Preparation of MOA & AOA

STEP – V: Fill details of PAN & TAN
STEP – VI: Submission of INC-32,33,34 on MCA
STEP – VII: Certificate of Incorporation

Privileges and Exemptions of Private Company

 Not required to prepare CF5 .

 Sec 188 is not application for Private Companies.
 Interested Director can participate in the board meeting for a private company.
 The requirement of deposit of 1,00,000 under section 160 is not applicable for private
company

PUBLIC COMPANY
By virtue of Section 2(71), a public company means a company which:
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed
A public company may be said to be an association consisting of not less than 7 members,
which is registered under the Act.

Incorporation of a Public Company

Requirement of minimum number of directors and shareholders:
There is a minimum requirement of directors and shareholders, as mentioned below:
(A) Public Limited Company
• Minimum Shareholders: 7 (Seven)
• Minimum Directors: 3 (Three)

Steps for incorporation:

Approving Authority: Registrar of Companies (RoC) and Reserve Bank of India (RBI)
1. Obtaining approval from FIPB (Foreign Investment Promotion Board), if required: If the
activities of the Indian wholly owned subsidiary fall under Government approval route, then
the approval from FIPB has to be obtained.
2. Obtaining DSC(Digital Signature Certificate) of proposed directors: Digital Signature
Certificates (DSC) are the digital equivalent (that is electronic format) of physical or paper
certificates. DSC is required to sign any electronic document like e-forms. DSC can be
obtained from any licensed Certifying Authority.
3. DIN (Director Identification Number) of proposed directors: It is mandatory for proposed
directors to obtain DIN (Director Identification Number) upto 3 under the Companies Act,
2013. through SPICE form . In case of existing companies DIN can be applied electronically
in Form DIR- 3 on the website of Ministry of Corporate Affairs (MCA), along with required
documents and filing fee.

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.5
Lesson 2. Types of Companies

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.6
Lesson 2. Types of Companies

4. Applying for availability of name: The fore most step in formation of a company is to
apply for availability of name of the proposed company. One must comply with the naming
guidelines in this regard. Form INC-1 has to be filed with MCA for reservation of name of
the proposed company.
5. Drafting of Memorandum of Association (MoA) and Articles of Association (AoA):
Memorandum of Association (MoA)is the charter of the company and it sets out its scope of
activities. Articles of Association (AoA), on the other hand, regulate the internal working of
the company. Both these documents are very crucial to the company and hence, are drafted
with utmost caution.
6. Filing incorporation documents Once the name is approved from the Registrar of
Companies, documents for incorporation have to be filed in Form -32
7. Filing of documents for registered office of the company (within 30 days of incorporation):
The company must have a place of business as its registered office. Form INC-22 has to be
filed along with the required documents, within 30 days of date of incorporation of the
company.
8 Certificate of Commencement of Business: A company, after its incorporation, could
commence its business only when the subscribed amount has been deposited by the
subscribers in the bank account of the company. A declaration from director that all the
subscribers of the company had paid the value of shares to be taken by them and the paid-up
share capital of the company is not less than five lakh rupees in Form INC-21 was required to
be filed within 180 days of its incorporation. In a recent amendment, government has done
away with the above -mentioned requirement of obtaining Certificate of Commencement of
Business (effective from end of May, 2015 i.e. 29-05-2015).

ONE PERSON COMPANY (OPC)

Incorporation of OPC
Section 2(62) of the Companies Act, 2013 define “one person company” as a company which
has only one person as member. OPC is a type of Private Company as per Section 2(68) and
Section 3(1)(c) of the Act.
Rule 3 of the Companies (Incorporation) Rules 2014 say, only a natural person who is an
Indian citizen and resident in India:-
(a) shall be eligible to incorporate a One Person Company;
(b) shall be a nominee for the sole member of a One Person Company.

Difference between a Sole Proprietorship and an OPC

The fundamental difference between a sole proprietorship and an OPC is the way liability is
treated in the latter.
An one-person company is different from a sole proprietorship because it is a separate legal
entity that distinguishes between the promoter and the company.
The promoter’s liability is limited in an OPC in the event of a default or legal issues. On the
other hand, in sole proprietorships, the liability is not restricted and extends to the individual
and his or her entire assets would be liable to repay the debts due by the sole proprietorship
business unlike OPC.

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.7
Lesson 2. Types of Companies

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.8
Lesson 2. Types of Companies

Contract by One Person Company

Section 193 (1) provides that where One Person Company limited by shares or by guarantee
enters into a contract with the sole member of the company who is also the director of the
company, the company shall, unless the contract is in writing, ensure that the terms of the
contract or offer are recorded in a memorandum or are recorded in the minutes of the first
meeting of the Board of Directors of the company held next after entering into contract.
However, above said provision shall not apply to contracts entered into by the one person
company in the ordinary course of its business.

Privileges of One Person Company

1) The financial statement of OPC, may not include the cash flow statement;
2) Need not hold annual general meeting
3) Need not prepare a report on Annual General Meeting
4) Financial statement and Board’s report can be signed only by one director.
5) Need not to appoint Independent directors on its Board.
6) Retirement by rotation is not applicable to these companies.

NIDHI COMPANIES
NIDHI companies are effectively non-banking financial companies and are engaged in the
business of accepting deposits and making loans to their members.

Incorporation of Nidhi
(1) A Nidhi to be incorporated under the Companies Act, 2013 shall be a public company and
shall have a minimum paid up equity share capital of five lakh rupees.
(2) No Nidhi shall have any object in its Memorandum of Association other than the object of
cultivating the habit of thrift and savings amongst its members, receiving deposits from, and
lending to, its members only, for their mutual benefit.
(3) Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as
part of its name.
(4) The director of a Nidhi company, shall be mandatorily a member of nidhi company.

Requirements for minimum number of members and net owned funds

Every Nidhi shall, within a period of one year from the commencement of these rules, ensure
that it has—
(a) not less than two hundred members;
(b) Net Owned Funds of ten lakh rupees or more;
(c) unencumbered term deposits of not less than ten per cent of the outstanding deposits as
specified in rule 14; and
(d) ratio of Net Owned Funds to deposits of not more than 1:20.
It may be noted that “Net Owned Funds” means the aggregate of paid up equity share capital
and free reserves as reduced by accumulated losses and intangible assets appearing in the last
audited balance sheet

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.9
Lesson 2. Types of Companies

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)
 2.10
Lesson 2. Types of Companies

Membership of Nidhi
(1) A Nidhi shall not admit a body corporate or trust as a member.
(2) Every Nidhi shall ensure that its membership is not reduced to less than two hundred
members at any time.
(3) A minor shall not be admitted as a member of Nidhi.

Loans by Nidhi
According to Rule 15 A Nidhi shall provide loans only to its members. The loans given by a
Nidhi to a member shall be subject to the following limits, namely:—
(a) two lakh rupees, where the total amount of deposits of such Nidhi from its members is
less than two crore rupees;
(b) seven lakh fifty thousand rupees, where the total amount of deposits of such Nidhi from
its members is more than two crore rupees but less than twenty crore rupees;
(c) twelve lakh rupees, where the total amount of deposits of such Nidhi from its members is
more than twenty crore rupees but less than fifty crore rupees; and
(d) fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members is
more than fifty crore rupees.

PRODUCER COMPANIES
Section 465(1) of the Companies Act, 2013 provides that the Companies Act, 1956 and the
Registration of Companies (Sikkim) Act, 1961 (hereafter in this section referred to as the
repealed enactments) shall stand repealed.

However, proviso to section 465(1) provides that the provisions of Part IX A of the
Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a
manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for
Producer Companies. In view of the above provision, Producer Companies are still governed
by the Companies Act, 1956.

According to the provisions as prescribed under Section 581A(l) of the Companies Act, 1956,
a producer company is a body corporate having objects or activities specified in Section 581B
and which is registered as such under the provisions of the Act. The membership of producer
companies is open to such people who themselves are the primary producers, which is an
activity by which some agricultural produce is produced by such primary producers.

FOREIGN COMPANIES
As per section 2(42), “foreign company” means any company or body corporate incorporated
outside India which—
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.

WORK HARD, DREAM BIG Shubhamm Sukhlecha

(CA, CS, LLM)