Company Law

Unit-1-2 : Kinds of Companies

By:
Dr. Nishant Dublish
Asst. Professor – Finance
IMS Unison University
 KINDS OF COMPANIES
A) On the basis of Mode of B) On the basis of No. of C) On the basis of Control
Incorporation Members

i. Chartered Company i. Private Company: i. Holding and Subsidiary

Company
ii. Statutory Company • One Person Company ii. Associate Company
iii. Registered or Incorporated • Small Company
Company:

• Co. Limited by Shares ii. Public Company

• Co. Limited by Guarantee

• Unlimited Liability Co.

D) On the basis of E) On the basis of F) Other Companies

Ownership Nationality
i. Government Company i. Indian Company i. Dormant Company

ii. Non-Government ii. Foreign Company ii. Start-up Company

Company
iii. Section 8 Company
 A) Classification of Companies by Mode of Incorporation
(i) Chartered companies. These are incorporated under a special charter
by a monarch (e.g. King or Queen of England). The East India
Company and The Bank of England are examples of chartered
incorporated in England. The powers and nature of business of a
chartered company are defined by the charter which incorporates it.
(ii) Statutory Companies. These companies are incorporated by a
Special Act passed by the Central or State Legislature. Reserve Bank
of India, State Bank of India, Industrial Finance Corporation, Unit
Trust of India, State Trading corporation and Life Insurance
Corporation are some of the examples of statutory companies. Such
companies do not have any memorandum or articles of association.
They derive their powers from the Acts constituting them and enjoy
certain powers that companies incorporated under the Companies Act
have.
(iii) Registered or incorporated companies.
These are formed under the Companies Act, 2013 or under the
Companies Act passed earlier to this. Such companies come
into existence only when they are registered under the Act and
a certificate of incorporation has been issued by the Registrar
of Companies.
Registered companies may further be divided into three
categories of the following:
a) Companies Limited by Shares [Section 4(1)(d)(i)]
b) Companies Limited by Guarantee [Section 4(1)(d)(ii)]
c) Unlimited Companies [Section 3(2)]
 B) On the Basis of Number of Members
(i)Private Company:
As per Section 2(68), as amended by the Companies
(Amendment) Act, 2015, a Private Company means a company
having a “minimum paid up share capital as may be
prescribed”* and which by its articles:
a) restricts the right to transfer its shares, if any;
b) except in the case of a One Person Company (OPC), limits the
number of its members to two hundred (employees and ex-
employees are not included in the 200);
c) prohibits any invitation to the public to subscribe for any
securities of the company.
*Minimum paid up share capital requirement of Rs. 1 Lakh has been omitted under
the Companies (Amendment) Act, 2015.
A private company can be:
a) One Person Company:
The Companies Act, 2013 has introduced the concept of
OPC, which provides benefits of both forms of business (i.e.
Sole Proprietorship and Company).
Section 2(62) of the Act defines OPC as “a company which
has only one person as member ”. In such a company, the
legal and financial liability is limited to the company only
and not to that person.
b) Small Company:
Section 2(85) defines ‘small company’ as a company,
other than a public company:
(a) whose paid up share capital does not exceed Rs. 50 lakhs or such
higher amount as may be prescribed, within the overall limit of Rs.
10 crores; AND
(b) whose turnover, as per its P&L Account for the immediately
preceding financial year, does not exceed Rs. 2 crore or such higher
amount as may be prescribed, within the overall limit of Rs. 100
crores.
However the following shall not be considered as a small company,
irrespective of their paid up share capital or turnover:
(i) A holding or subsidiary company; or
(ii) Non-Profit Association i.e. a company registered with charitable
objects u/s. 8; or
(iii) A company or body corporate governed by any special Act.
Note: OPC or ‘Small Company can not be formed for non-economic objectives,
i.e. as a non-profit association
(ii) Public Company:
According to Section 2(71) of the Companies Act, 2013, as
amended by the Companies (Amendment) Act, 2015 , defines a
Public company to mean a company which:
a) is not a private company;
b) has a minimum paid-up capital as may be prescribed.*

* Minimum Capital Requirement of Rs. 5 Lakh has been omitted under the
companies amendment Act, 2015.

NOTE: A private company which is a subsidiary of a public

company shall be deemed to be a public company,
regardless of its status as private company.
Public Company Vs. Private Company
1. Minimum number of Members: The minimum number of
persons required to form a public company is 7. It is 2 in case of
a private company.
2. Maximum number of Members: There is no restriction on
maximum number of members in a public company, whereas the
maximum number cannot exceed 200 in a private company.
3. Number of Directors: A public company must have at least 3
directors whereas a private company must have at least 2
directors.
4. Transfer of Shares: In a private company, the right to
transfer shares is restricted by the Articles and the transfer
requires the prior permission of the BODs. However, in a
public company, a shareholder can transfer his shares
freely without any restrictions.
5. Name of the Company: In a private company, the words
“Private Limited” shall be added at the end of its name,
whereas a public company uses only the word “Limited”
6. Public subscription: A private company cannot invite
the public to purchase its shares or debentures. A public
company may do so.
7. Issue of prospectus: Unlike a public company a private company
is not expected to issue a prospectus or file a statement in lieu of
prospectus with the Registrar before allotting shares.
8. Commencement of business: A private company may commence
its business immediately after obtaining a certificate of
incorporation. A public company cannot commence its business
until it is granted a “Certificate of Commencement of business”.

9. Issue of Securities in Dematerialized form: A private company

may issue its securities in physical or dematerialized form or may
convert its securities into dematerialized form. A public company
making public offer of securities shall issue the securities only in
dematerialized form.
10. Managerial Remuneration: No restriction on the payment of
remuneration to the directors, managing directors etc., in case of a
private company, while overall maximum managerial remuneration is
fixed at 11% of annual net profits in case of a public company.

11. Audit Committee, Nomination & Remuneration Committee:

Every listed public company and other class of public companies are
required to have such committees. However, private companies are
under no such compulsion to constitute these committees.

12. Relaxed Provisions: A private company is exempted from certain

provisions like the requirement of retirement of directors by rotation,
independent directors, women directors, rotation of auditor and audit
firm etc.
 EXEMPTIONS & PRIVILEGES OF
PRIVATE COMPANIES
 Number of Members and Directors
 Provisions u/s. 101 – 107 regarding convening and holding of
shareholders’ general body meetings do not apply
 Exempt from filing report on ‘Annual General Meeting’ (AGM).
 No restriction on Managerial Remuneration
 Relaxed provisions with regards to Directors & Auditors: Women
Director, Independent Director, Rotation of Directors and Auditors
(or Audit Firm) etc.
 Exempt from constituting Audit and Nomination & Remuneration
Committee
 Exempt from appointing ‘Key Managerial Persons’ (KMP).
 Conversion of Company
The Act provides for conversion of public company
into a private company and vice versa.
A private company is converted into a public
company either by default or by choice in compliance
with the statutory requirements.
Once the action for conversion takes place then, a
petition can be filed with the central government with
the necessary documents for its decision on the matter
of conversion.
 C) On the Basis of Control

i) Holding and Subsidiary Companies:

‘Holding Company’ in relation to one or more other companies,
means a company of which such companies are subsidiary
companies [Section 2(46)].
As per Section 2(87), ‘Subsidiary company’ or ‘subsidiary’ in
relation to any other company (that is to say the holding company)
means a company in which the holding company:
(a) controls the composition of the BODs; or
(b) exercises or controls more than half of the total share capital either
on its own or together with one or more of its subsidiary companies.
ii) Associate Companies:
Section 2(6): “Associate company” in relation to another
company, means a company in which that other company
has a significant influence, but which is not a subsidiary
company of the company having such influence and
includes joint venture company.
Note: A company holding 20% or more of the share
capital of another company, but less than 50% or more of
its share capital, will be an Associate Company.
 D) On the basis of Ownership

(i) Government Companies [Section 2(45)]:

 A Company of which not less than 51% of the paid up capital is held
by the Central Government of by State Government or Government
singly or jointly is known as a Government Company.
 It includes a company subsidiary to a government company. The share
capital of a government company may be wholly or partly owned by
the government, but it would not make it the agent of the government.

(ii) Non-Government Companies:

 All other companies, except the Government Companies, are called
non-government companies. They do not satisfy the characteristics of a
government company as given above.
 No Need to use word Limited or Private Limited: The name of all
Government Companies shall end with the word “Limited”, be it
Public or a Private Company.”
 Name: In case of Government Company the word “STATE” is
allowed in name.

NOTE:
 A Govt. Company has certain special features, but it should not be
placed on the same footing as Government.
 In no case, a Govt. Company is identified with the State and its
employees do not become Govt. servants, holders of civil posts
under the Union or State Govt.
 A Govt. Company is a form of mixed enterprise where public as well
as the Government, both are allowed to subscribe to the capital of a
company.
 E) On the basis of Nationality of the Company

(i) Indian Companies:

These companies are registered in India under the Companies
Act, 2013 and have their registered office in India. Nationality
of the members in their case is immaterial.

(ii) Foreign Companies [Section 2(42)]:

A company 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.
OTHER COMPANIES
 One Person Company
 The Companies Act, 2013 has introduced the concept of OPC, which
provides benefits of both forms of business (i.e. Sole Proprietorship
and Company)

Provisions of OPC under Companies Act, 2013:

 Section 2(62) of the Act defines OPC as “a company which has only
one person as member ”. In such a company, the legal and financial
liability is limited to the company only and not to that person.
 Section 2(68) of the Act provides that a private company includes
OPC. All provisions of the Act applicable to a private company shall
also be applicable to an OPC.
 The name of OPC shall include the word ‘One Person Company’
within bracket below the name of the company.
 PRIVILEGES OF OPC
There is no need to prepare a cash flow statement.
Annual Return must be signed by a CS and where there is no CS, by
the director of the company.
Not required to hold AGMs.
Financial Statements shall be signed only by one director and CFS
can be excluded.
The provisions of Section 98 (Power of Tribunal to call meetings of
members etc.) and Sections 100-111 (related to meetings) shall not
apply to OPC.
Minimum 1 and maximum 15 directors.
Only one director on the BODs is sufficient.