Definition of Company & its Characteristics
Sec 3(1)(i) and (ii) of the Companies Act define a company as a company formed and registered under this Act or an existing company. company. A company may, however, be defined as an incorporated association, which is an artificial legal person, having a separate legal entity, with a perpetual succession, a common seal, a common capital comprised of transferable shares and carrying limited liability. liability.
Characteristics of a Company
Incorporated Association (ii) Artificial Legal Person (iii) Separate Legal Entity - Salomon V Salomon & Co. Ltd (1897) Salomon sold his business as leather merchant for 30, 30,000 British Pound (BP) to Salomon & Co. Ltd which Co. consisted of Salomon himself, his wife, his daughter and four sons. The purchase consideration was paid by sons. company by allotment of 20,000 fully paid 1 BP shares 20, and 10,000 BP in debentures conferring a floating 10, charge over all the company s assets to Salomon. Salomon.
One share of 1 BP each was subscribed by the remaining six members of his family. family. Salomon was the MD of the company and as he virtually had whole of the stock and he had absolute control over the company. company. Only a year later, the company became insolvent and winding up commenced. On winding up the commenced. statement of affairs of the company was assets 6000 BP, Liabilities Salomon as debenture holder 10, 10,000 BP and unsecured creditors 7000 BP. BP.
The liability of the members for Liabilitythe debts of the company is limited to the amount unpaid on their shares.(iv) Perpetual Succession (v) Common Seal (vi) Limited Liability. (vii) Transferability of the shares
1956 otherwise it shall be treated as an illegal association.Illegal Associations
According to the Sec 11. case of a partnership firm doing banking business it is mandatory to get it incorporated under the companies act whenever total number of partners are more than 10 and in other cases a partnership firm whenever has more than 20 partners it should mandatorily be registered under the Companies Act. Companies Act.
. 1956 in 11. association.
Sub section 5 of section 11 provides that every member of such illegal association will be punishable with fine which may extend to Rs 10.Consequences of Non-registration as per Sec Non11.000/ 10. 1956
No legal existence Unlimited Personal Liability FineFine.000/-
. Companies Act.
Government. ROC. This is effected by registration with the Registrar of Companies (ROC) . auditors and signatories to the memorandum. brokers. memorandum. (iv) To get Memorandum and Articles of Association prepared and printed. if company s business comes under Industries (Development & Regulation) Act. solicitors.
. (ii) To get a letter of intent. incorporation.Incorporation of Company
A company is bought into existence by a legal process called incorporation. ROC are generally appointed for each state by the Central Government. 1951 (iii) To fix underwriters. printed. For incorporation of a company the following steps are taken by promoterspromoters(i) Availability of Name with the ROC. bankers.
SBI.Kinds of Companies
Kinds of Companies according to the mode of incorporation: (i) Statutory Company RBI.LIC FCI etc (ii) Incorporated or Registered Company
a private company means a company which has a minimum paid up capital of Rs 1 lakh or such higher paid up capital as may be prescribed and by its article of association: association: (i) restricts the right of the members to transfer share.Kinds of Registered Companies on the basis of number of members
Private Companies. & Public Companies Private Company According to Section 3(1)(iii). if any. any.
relatives. directors or their relatives.(ii) Limits the number of its members to fifty.
. (iv) prohibits any invitation or acceptance of deposits from persons other than its members. and company. or debenture of the company. excluding employees of such company (iii) prohibits any invitation to the public to subscribe for any share in.
(iii) is a private company subsidiary of a public company. (v) does not limit the maximum number of members.
. (ii) has a minimum paid up capital of 5 lakh or such higher paid up capital as may be prescribed.Public Company (Sec 3(1)(iv)
According to Sec 3(1)(iv) a public company means a company which: (i) is not a private company. (iv) does not have any restriction on the transfer of share.
(vii) can invite or accept deposits from public.(vi) Can invite public for the subscription of its share and debentures.
. public.& debentures.
(ii) Companies Limited by Guarantee. Companies. or Guarantee.Kinds of Registered Companies on the Basis of Liability of Members
On the basis of liability of members. (iii) Unlimited Companies. the Companies Act makes provision for the registration of three types of companies. namely: namely: (i) Companies Limited by Shares. or Shares. Each of these types may be a public company or private company (Sec 12) 12)
The liability can be enforced at company. if any. 12( )(a)]. Most of the shares. limited by shares [Sec 12(2)(a)]. any time during the existence and also during the winding up of the company. co. Such a company must company. to the amount.
. type. Such a company is generally called a limited liability company. companies in India are of this type.Companies Limited by Shares
A company having the liability of its members limited by the memorandum. unpaid on shares respectively held by them is termed as a co. have share capital as extent of liability is determined by face value of shares.
. The 12( )(b)]. amount guaranteed by each member cannot be demanded until the company is wound up.Companies Limited by Guarantee
A company limited by guarantee may be defined as a company having the liability of its members limited by its memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up . capital. [Sec 12(2)(b)]. it is like reserve capital.
These types of companies are normally formed without share capital for non trading purposes such as promotion of commerce. Trade Associations and Sports Clubs etc are guarantee companies because they neither require huge capital nor aim profit making. making.
. science. capital. art.Such company may or may not have share capital. sports etc such as Chambers of Commerce.
every unlimited. in proportion to his interest in the company. If one is unable to contribute anything. member is liable to contribute. company. towards the amount required for payment of the total liability of the company. 12(2)(c)]. 12( )(c)]. The liability of members of such company is unlimited. Like a partnership. company.Unlimited Companies
A company having no limit on the liability of its members is an unlimited company. [Sec company. other members have to share deficiency in proportion to their capital in the company. -Partnership and Unlimited Companies
Other Kinds of Companies
Licensed Companies One Man Company or Family Company Such as Salomon & Company Ltd. Foreign Company is a company incorporated outside India Government Company such co. in which not less than 51% of paid up capital share capital is held by the central or state government. Holding Company & Subsidiary Company
Any association formed for government. company. Before registration a licensed is obtained from central government. liability.Licensed Company or Not for Profit Company Sec 25 of the Act provides for such company. religion. promotion of art. science.
. charity or any other useful object which does not intend to apply its profit for payment of any dividend to its members but instead to apply its income for promoting its objects can obtain a license from the government and can get registered itself as a company with limited liability.
if fundamental conditions of the license are violated. (iii) They are exempted from minimum paid up capital.
. The government may revoke the license at any time of such companies.On registration such company enjoys following exemptions and privileges: (i) such co. (ii) They are registered without payment of stamp duty on their memorandum and articles. may exclude the word limited or private limited from their names.
may make co.Exemptions & Privileges of Private Companies
Only two person (seven in public co. At the time of getting the company incorporated
. a company [Sec 12] 12] It can commence business immediately on incorporation as it has not to wait to obtain a certificate for the commencement of business [Sec 149(7)] It is allowed to work with only two directors whereas at least three are required in a public company.
With the ROC. directors are not required to file with Registrar their consent in writing to act in that capacity and their undertaking to take up qualification shares. A report. [Sec 70(3)] 70( (vi) It can proceed to allot shares without having to wait for any such thing as minimum subscription [Sec 69] 69] (vii) It is exempted from the requirement of holding statutory meeting and filing statutory report. public company must hold such a meeting after one month and before six months from the obtaining
. Registrar. if any [Sec 266(5)] 266( (v) It need not prepare and file prospectus or statement in lieu of prospectus with the Registrar.
81. in certain cases. about the details of company s working till that day [Sec 165] 165] (viii) Right of pre-emption does not apply to such a preprivate company. proposing to increase its subscribed capital by allotment of further shares. must offer them to existing equity shareholders prorata in the first instance. A private company is free to allot new issues to outsiders [Sec 81(3)] 81(
. According to Sec 81. a public company. company. instance.certificate to commence business in order to acquaint the shareholders.
Eg: companies. comply with restrictions relating to the agencies of management which are applicable to public companies. [Sec.(ix) It enjoys considerable freedom with regard to its directors. It is not required to manager. Eg: (a) All its directors can be permanent life directors and the requirement of rotation does not apply [Sec 255] 255] (b) All its directors can be appointed en bloc by a single resolution [Sec. 255] 255] (c) Number of Directors can be increased beyond the limit fixed in the articles of association without Central Govt sanction [Sec 259] 259]
. MD or manager.
a special disqualification for appointment of directors
. their consent in writing to act as such director [Sec 264(3)] (d) An interested director may participate in the board meeting and exercise his vote.(d) Directors are not required to file with the Registrar. [Sec 300] (e) Central Govt s approval is not requred either for appointment or reappointment of a MD or wholetime directors [Sec 268] (f) It may provide by AOA. within 30 days of their first appointment.
MD etc (fixed at 11% of annual net profit for managerial personnel in case of a public co) Sec 198)
. 316 and 386] (h) Restriction on period of appointment of a MD/Manager(5yrs in case of a public company) not applicable [Sec 317] (i) No restriction on payment of remuneration to Directors.(g) No restriction on number of companies to be managed by a director (15 in case of public co) or by MD or managers (2 in case of a public co) [Sec 275.
requires prior permission of Board of Directors
. (i) Min Paid up Capital 5 L (ii) No of members 7 no maximum limit (iii) Min no of Directors 3 (iv) Transfer of Share a shareholder can transfer his shares freely without restriction. (i) 1 lakh (ii) 2-50 2(iii) 2 (iv) The right is restricted by articles of association.Public & Private Company Public Co. Private Co.
by its (v) Public subscription Articles of Association A public co. (v) A private co.Public & Private Company
Private Co. can invite prohibits any invitation public for the subscription to the public for any of its share and share debentures (vi) Immediately (vi) Commencement of Business only after getting the Certificate of Commencement of Business
. Public Co.
Public & Private Company
Public Company (vii) Issue of Prospectus Must file with ROC a prospectus or Statement in lieu of prospectus (viii) Allotment of share minimum subscription is necessary Private Co. (vii) Need not prepare
(viii) Can proceed to allot share without minimum subscription
Public & Private Company
Public Co (ix) Statutory Meeting Must hold such meeting after one month and before 6 months from the date of obtaining the certificate of commencement of business Private Co (ix) Is not required to hold such meeting
Public & Private Company
Public Company (x) Provision regarding Directors Permission of Central Govt is required for appointment or reappointment of MD or whole time directors Private Company (x) no such approval is required
Public & Private Company
Public Co (xi) Managerial Remuneration Maximum managerial remuneration is fixed at 11% of annual net profit (xii) Index of members must keep in case more than 50 Private Co (xi) No such restriction
(xii) Not required to keep an index of members
Deliberate Conversion A private company may. automatically.Conversion of Companies
Automatic Conversion by default In case of a Private co. (ii) transfer of shares. at anytime by a special resolution delete from the its articles the four compulsory restrictions as to (i) membership. Prospectus or Statement in lieu of Prospectus in 30 days
. it permits free transfer of shares. if membership exceeds 50. Altered Articles. invites public to subscribe to its shares or debentures it becomes a public co automatically. 50. (iii) public share & (iv) acceptance of public deposits -to the ROC.