Definition of One Person Company

Section 2(62) of Companies Act defines a one-person company as a company that has only one
person as to its member. Furthermore, members of a company are nothing but subscribers to its
memorandum of association, or its shareholders. So, an OPC is effectively a company that has
only one shareholder as its member.

Such companies are generally created when there is only one founder/promoter for the business.
Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole
proprietorship business because of the several advantages that OPCs offer.

Features of a One Person Company

Here are some general features of a one-person company:
a. Private company: Section 3(1)(c) of the Companies Act says that a single person
can form a company for any lawful purpose. It further describes OPCs as private
companies.
b. Single-member: OPCs can have only one member or shareholder, unlike other
private companies.
c. Nominee: A unique feature of OPCs that separates it from other kinds of
companies is that the sole member of the company has to mention a nominee
while registering the company.
d. No perpetual succession: Since there is only one member in an OPC, his death
will result in the nominee choosing or rejecting to become its sole member. This
does not happen in other companies as they follow the concept of perpetual
succession.
e. Minimum one director: OPCs need to have minimum one person (the member)
as director. They can have a maximum of 15 directors.
f. No minimum paid-up share capital: Companies Act, 2013 has not prescribed
any amount as minimum paid-up capital for OPCs.
g. Special privileges: OPCs enjoy several privileges and exemptions under the
Companies Act that other kinds of companies do not possess.
Formation of One Person Companies
A single person can form an OPC by subscribing his name to the memorandum of association
and fulfilling other requirements prescribed by the Companies Act, 2013. Such memorandum
must state details of a nominee who shall become the company’s sole member in case the
original member dies or becomes incapable of entering into contractual relations.
This memorandum and the nominee’s consent to his nomination should be filed to the Registrar
of Companies along with an application of registration. Such nominee can withdraw his name at
any point in time by submission of requisite applications to the Registrar. His nomination can
also later be canceled by the member.
Membership in One Person Companies
Only natural persons who are Indian citizens and residents are eligible to form a one-person
company in India. The same condition applies to nominees of OPCs. Further, such a natural
person cannot be a member or nominee of more than one OPC at any point in time.
It is important to note that only natural persons can become members of OPCs. This does not
happen in the case of companies wherein companies themselves can own shares and be
members. Further, the law prohibits minors from being members or nominees of OPCs.
Conversion of OPCs into other Companies
Rules regulating the formation of one-person companies expressly restrict the conversion of
OPCs into Section 8 companies, i.e. companies that have charitable objectives. OPCs also
cannot voluntarily convert into other kinds of companies until the expiry of two years from the
date of their incorporation.
Privileges of One Person Companies
OPC enjoy the following privileges and exemptions under the Companies Act:
 They do not have to hold annual general meetings.
 Their financial statements need not include cash flow statements.
 A company secretary is not required to sign annual returns; directors can also do
so.
 Provisions relating to independent directors do not apply to them.
 Their articles can provide for additional grounds for vacation of a director’s
office.
 Several provisions relating to meetings and quorum do not apply to them.
 They can pay more remuneration to directors than compared to other companies.
 The memorandum of association
Memorandum of Association of a Company
Memorandum of association of the company deals with all aspects of that particular
organisation such as the operations delegation of duties and policies, principles, etc. The
memorandum of association of any company is formed or designed by considering the
objective of a particular firm. In the year 2013, section 399 of the companies act, designed
to form an MOA, which is the public document and needs to get aware of this moa to all
employees of an organisation.

What is Meant by MOA?

The memorandum of association definition explains that all the powers and the rights
should be mentioned in this public document and no one should depart from the contract as
well as not to Violet the rules and regulations specified in the moa. If anyone violates, they
can be termed as ultra vires of the company and immediately can void them. This is the
simple and straight away definition of the memorandum of association of any company. It is
completely under legal survival. All the papers are strictly verified and are tested by the moa
in company law.

Types of MOA
Based on their form, there are five main types of memorandum of association and they are
as follows:
1. Table A - if shares end up limiting a company.
2. Table B - if a guarantee limits a company.
3. Table C - if a guarantee along with share capital limits a company.
4. Table D - if it is an unlimited company.
5. Table E - if it is an unlimited company and has a share capital.

Contents of MOA
The contents of the memorandum of the association consist of different clauses. Each clause
plays a vital role in the organisation. Let's see all the classes in a detailed manner as given
below,
1. Name Clause:- the name clause of moa specifies that the titles of all the private
limited companies should end with 'private limited'. On the other hand, the titles of
all the government companies should end with 'limited'.

The companies under section 8 of the act, may need not to follow these rules. These
companies can be identified by certain words like-
  Association
 Federation
 Foundation
 Confederation
 Forum
 Chamber
 Council
 Electoral trust.
2. Registered Office Clause- indicates the state of the registered office where the
organisation is located exactly. It is very important to specify the branch of the
registered office where the organisation got registered.
3. Object Clause: this segment of the memorandum of association explains the motto
of the organisation and its activities. After a few months if there is a change in
activities and operations, then the head of the institution needs to change the name
of that organisation within 6 months. Otherwise, it will become an offence.
4. Capital Clause: it concentrates on the capital invested by two or more shareholders
of one company. We need to furnish the information regarding the amounts of share
between the shareholders and how they formulated their rules etc. in the
memorandum of association.
5. Liability Clause: it is another important class of memorandum of association. Here
we need to explain the liability of the members either limited or unlimited in the
firm.

If the company is limited by shares, it needs to specify the amounts held by the shareholders
and whether they are paid or unpaid. All these aspects need to be mentioned clearly in the
MOA.

If the company is restricted by guarantees, the Moa specifies that all contributors with a
bonus have equal rights. Even during the winding up of a company, both assets and liabilities
which include all the expenses while demolishing the firm need to be distributed equally.
6. Association Clause: It is the last but not least, class of the memorandum of
association. Here one should mention the exact idea and goal of the owner of the
company.

Amendment of MOA
If any of the following changes take place, then it means that the memorandum of
association needs to be amended:
  If an alteration takes place in the name of business.
 If any changes happen in the office of registration.
 If an alteration takes place in the object clause of the business.
 If an alteration takes place in the authorised capital of the business.
 If any kind of adjustments are made in the legal liabilities of the business members.

The procedures to be followed for making any types of amendments in the memorandum of
association have been mentioned in the 13th clause of The Companies Act, 2013.
Category Public Limited Company Private Limited Company

A public limited company is a joint stock A private company is a closely held

company, that is not a private company, company that does not have its
Meaning
and the shares of which are listed on a shares listed on any stock exchange
stock exchange. and cannot be openly traded.

The minimum number of members to The minimum number of members

start a public limited company is 7 and needed to start a private limited
Number of
there are no restrictions on the company is 2 and the maximum
members
maximum number of members in a number of members cannot exceed
public limited company. 200.

The minimum paid-up capital needed for The minimum paid-up capital for a
Paid-capital
a public limited company is Rs. 5,00,000 private company is Rs 1,00,000

Shares of a public company are available Shares of a private limited company

Transferability of in the open market and can be traded cannot be listed on any stock
shares easily subject to the rules and regulations exchange and cannot be traded in
laid down by SEBI the open market.

A public limited company mandatorily

A private company cannot issue a
Issue needs to issue a prospectus and duly file
prospectus and a statement in lieu
of prospectus it as per the guidelines of the Companies
of a prospectus is issued.
Act, 2013.

A private limited company is not

allowed to have a subscription of its
A public limited company is entitled to
shares by the general public. This
Subscription accept subscriptions from the general
implies that such a company cannot
from the public public and issue shares or debentures to
issue any shares or debentures to
raise capital.
the general public for raising capital
at any point

Allotment A public company is restricted to allot A private company has no such

subject to shares until the minimum subscription restrictions and are free to allot
minimum required as per its prospectus is their shares as per their articles of
subscription achieved association.

The minimum number of Directors in a The minimum number of Directors

Directors
public limited company is 3 in a private limited company is 2

In a public limited company the In a private limited company, two

Appointment of
appointment of only one Director can be or more Directors can be appointed
Directors
done through a single resolution. through a single resolution

As per the provisions of the Companies

A private limited company does not
Act, 2013, at least ⅔ Directors of the
Retirement of have such restrictions relating to
common have to retire by rotation. Out
Directors the retirement of Directors by
of these Directors, at least ⅓ Directors
rotation.
have to retire each year

In the case of a public company the

quorum required for a meeting is
A private company needs minimum
Number of members Quorum 1000 or
Quorum 2 members present to meet the
less5 members. More than 1000 but less
quorum of a meeting
than 500015 members. More than
500030 members

The AGM of the company is to be held

only at its registered office or any place The AGM of a private limited
What is a private company?
A private company like a public limited company comes under the ambit of the Companies
Act, 2013. Under this Act, a private company is defined as per provisions of section 2(68) as
a joint stock company that is formed by 2 or more members. Such companies cannot list
their shares on stock exchanges and their shares cannot be traded publicly as in the case of a
public limited company. There are stringent provisions relating to the transfer of shares in a
private company. As per the provisions of the Act, a private company can be defined as a
voluntary association of 2 or more persons and the minimum paid-up capital needed for a
private company is Rs. 1,00,000.
Also, unlike a public company, the maximum number of members in a private company is
restricted to 200. This number does not include the current employees or the ex-employees
who have been members of such a company and continue to be members even after their
exit from the entity. Another important requirement is to attach the words ‘Private Limited’
to the name of the company so the stakeholders will be aware of the nature of the
company.
Also Read: What is joint stock company?
What is a public company?
The definition of a public company under the Companies Act, 2013 is a negative definition
which basically implies how not to identify a public company.
As per provisions of section 2(71) of the Companies Act, 2013, a public company is any joint
stock company incorporated under the Companies Act 2013 and is not a private company.
Such companies have a minimum paid-up capital of Rs. 5,00,000 and require a minimum of 7
members to form a private company.
Unlike private companies, there are no restrictions on the maximum number of members
that can be allowed in a public company. The shares of such companies are listed on stock
exchanges and can be easily traded as per the guidelines of SEBI. Such companies are
required to attach the words ‘Public Limited’ to their name for all the stakeholders to be
aware of the nature of this company.
Invest in Stocks Wisely with Fisdom
What are the key differences between public and private companies?
After learning the basic definition of public limited and private limited companies, let us now
understand the key differences between the two.
Public companies offer shares to the public through stock exchanges, allowing anyone to buy
ownership. Private companies have limited shareholders and aren’t traded on exchanges.
Public firms face stricter regulatory requirements, disclosure, and scrutiny, while private
ones have more flexibility but less access to capital markets.
Let’s take a look at some of the other differences between these two business structures:
Examples of public and private companies
Here are examples of both public and private companies in India:
Public Companies:
1. Reliance Industries Limited: A conglomerate with interests in petrochemicals,
refining, telecommunications, and retail.
2. Tata Consultancy Services (TCS): A multinational IT services company providing
software solutions and consulting.
3. State Bank of India (SBI): The country’s largest public sector bank, offering banking
and financial services.
Private Companies:
1. Ola Cabs: A ride-hailing platform providing transportation services via a mobile app.
2. Swiggy: An online food delivery platform connecting customers with local
restaurants.
3. Reliance Jio Infocomm: A subsidiary of Reliance Industries, offering
telecommunications services and digital products.

The Promoters of a Company?

As per Section 2(69) of the Companies Act, 2013, promoter means any of the following
persons:
 A person named as a promoter in the prospectus or identified by the company in its
annual return in Section 92.
 A person who controls the company affairs, indirectly or directly, whether as a
director, shareholder or otherwise.
 A person in accordance with whose directions, advice or instructions the Board of
Directors of a company are accustomed to act.
In simple words, promoters perform the preliminary steps, like floating the securities in the
market, making the prospectus of the company, etc., for establishing the company’s
business. However, if a person is doing these things professionally, they will not be
considered a promoter.
Types of Promoters of a Company
A promoter is a person/entity who conceives the idea of company formation. An individual,
firm, association of person or company can be a promoter. A promoter of a company can
be any of the following types:
 Professional promoter: A professional promoter is an expert in promoting the
business during its formation or inception. They transfer the ownership of the
business to shareholders when it is established in the market.
 Financial promoter: A financial promoter is a promoter who invests capital or money
and has a sizable company share. They promote banks or financial institutions. They
aim to assess the market's financial situation and start a company at the right
moment.
 Managing promoter: A managing promoter helps in company formation. They also
get the managing rights in the company after it is formed.
 Occasional promoter: An occasional promoter is a promoter whose main job is to
float the company. They do not promote the business routinely since they are in
charge of two to three enterprises, and they get involved only in the crucial matters
of the business.
Functions of a Promoter
A promoter plays many functions in the formation of a company, from conceiving the
business idea to taking all the required steps to make the idea a reality. Below are some of
the functions of a promoter:
 A promoter needs to comprehend/conceive the idea of company formation.
 A promoter looks into the feasibility and viability of the business idea. He/she
assesses whether the company formation will be practicable or profitable.
 Once the idea is conceived, the promoter organises and collects the available
resources to convert the business idea into a reality.
 The promoter decides the company name and settles the contents of the
company’s Memorandum of Association and Articles of Association.
 The promoter decides the location of the company’s head office.
 The promoter nominates associations or people for vital company posts, such as
appointing the auditors, bankers and the company’s first directors.
 The promoter prepares all the necessary documents required to incorporate a
company.
 The promoter decides the company’s funding sources and capital requirements.
A promoter cannot be considered a trustee, employee or agent of a company. The role of
the promoter ceases when the company is established and is handled by the board of
directors and the company management.
Duties of a Promoter
The promoters have certain duties towards the company, which are as follows:
Disclose hidden profits
The first duty of the promoters is to be loyal to the business and not involve in malpractice.
They should not earn secret or hidden profits while carrying out promoting activities such as
buying a property and selling it for a profit without disclosing it. They are not barred from
making such profits, but the only condition is that they must disclose it. They must share all
the information regarding their profitability and earnings with all the relevant company
stakeholders.
Disclose all material facts
A promoter has a relationship of trust and confidence with the company, i.e., a fiduciary
relationship. Under this fiduciary relationship, the promoter has the duty to disclose all
material facts relating to the company’s business and formation with the relevant
stakeholders.
Act in the best interest of company
In all situations, promoters should prioritise the company’s interest over their personal
interests. They must give utmost consideration to the company’s best interest in its
formation and all business dealings.
Disclose all private arrangements
While forming and establishing a company, many private transactions take place. However,
such transactions must be disclosed by the promoters to the stakeholders. It is the duty of
the promoters to disclose all private transactions and the profit earned from them to the
stakeholders.
Rights of a Promoter
The rights of promoters include the following:
Right of indemnity
Promoters are jointly and severally accountable for any hidden profits made by any of them
and false statements made in the prospectus. All the promoters are individually and equally
responsible for the company’s affairs. Thus, one promoter can claim the compensation or
damages paid by him/her from the other promoters.
Right of preliminary expenses
A promoter is entitled to reimbursement for preliminary expenditures incurred for the
company’s establishment, such as solicitors’ fees, advertising costs and surveyors’ fees.
Right of remuneration
A promoter has the right to receive remuneration from the company unless a contract to the
contrary. The company’s Articles of Association can also provide that the directors can pay
an amount to the promoters for their services. However, the promoters cannot sue the
company for remuneration unless there is a contract.
Liability of a Promoter
The liabilities of a promoter include the following:
 They cannot make secret profits out of company profits or deals for personal
promotion. The promoters are liable to pay such profits to the company when they
make such profits.
 They can be held liable for damages or losses suffered by a person who subscribes
for debentures or shares due to the false statements made in the company
prospectus.
 They are criminally liable for mentioning untrue statements in the prospectus.
 They can be held liable for a public examination of private company documents when
there are reports alleging fraud in the company formation or promotion activities.
 They are also liable to the company where there is a breach of duty on their part,
misappropriated company property or guilty of breach of trust.
Frequently Asked Questions
What are promoters of a company?
A promoter is a person or entity who settles on an idea to establish a specific business and
completes the required formalities for its establishment. An individual, company, firm or
association can conceive the idea of company formation and be the company’s promoter.
The promoter undertakes all the activities necessary for the company’s incorporation and
establishes it as a separate legal entity.
Can a promoter of a company be the independent director?
As per the Companies Act, 2013, an independent director is a director other than the whole-
time, managing or nominee director. An independent director should not be or have been a
promoter of the company. A person related to the promoters or directors of the company, its
subsidiary, holding, or associate company cannot be a director. Thus, a promoter of a
company cannot be the independent director.
How to become promoter of a company?
Any person or set of individuals who come together collectively to establish a business or
idea can become promoters. Any person in whose mind the seed of starting a business
emerges can be a promoter. To be a promoter, it is not essential to be a business founder. A
person who arranges for capital and assists in crucial work part-time can also be a promoter.
However, a person must have an understanding of the industry, marketing or sales
knowledge to be a promoter.

How to find promoters of a company?

Following is the process to find out the promoters of a company:
 Visit the official MCA website.
 On the homepage, click on the ‘MCA Services’ tab and choose the ‘Master Data’
option from the drop-down menu.
  Click on the ‘View Signatory Details’ option.
 Enter the company name and CIN and click on the ‘Submit’ button.
 The company’s signatories will be displayed on the screen. All the signatories, or any
one of them, would be the company promoter.
What is the legal position of a promoter?
It is tough to define the legal status of a promoter. Promoters are not the trustees or agents
of the company. They behave in a fiduciary capacity for the company. They take actions and
activities to create the company and pay the preliminary costs related to its incorporation,
such as stamp duty, registration and professional fees. They have a fiduciary duty towards
the company and are liable for any profits made by them personally in company deals.

Incorporation of Company
In a legal world, it is best for a company to get registered after its incorporation. In a way,
Incorporation and Registration go hand in hand as an unregistered business cannot claim
many benefits like taxable claims. The company cannot even file a suit against any third
parties.

Formation and Incorporation of Company

We see an unregistered company faces many disadvantages, thus companies get registered
under The Companies Act 2013 or any other recognized statutory act.

To register and incorporate a company, an application needs to be filed with the Registrar of
Companies. The application is to be accompanied by the names of the members,
memorandum of association and articles of association and other important documents.
These are also required to be filed with the Registrar of Companies (ROC) of the state in
which the company is proposed to be incorporated.
The Mentioned Documents are to be filed with the Application for Registration and
Incorporation:
1. Memorandum of Association (MOA)
2. Articles of Association (AOA)
3. The agreement, where the company agrees to enter into any appointment of
managing or full-time director.
4. A copy of the letter where the ROC intimates the availability of time
5. The documents that mandate the payment of registration and filling of the fees
6. The documents that mention the directorship and location of the office of the
company
7. A declaration that the company has already complied with all the rules of the
Companies Act.

When all these requirements have been complied, the Registrar of Companies (ROC)
registers the company and issues a certificate of incorporation in regards to the company
that brings the company into existence in the eyes of law, as a legal entity in India. This
makes the company bound to all Indian laws and regulations as are applicable to other
domestic companies.

Stages of Formation of a Company

There are a few leading steps in the formation of a company. The steps are as follows:
Step 1 – Promotion of a Company
The most important step is the forming of a company, here the promoter talks about the
ideas and further business-building process.

Step 2 – Registration of A Company

This is the legal part of the formation process as there is a lot of data, paperwork, relation
with people, memorandums, declarations that must be involved.

Step 3 – Certificate of Incorporation

After all the legal formalities, the company need to start functioning, and this validity is
provided in this stage

Step 4 – Certificate of Commencement of Business

After receiving the certificate of incorporation, they can now start their own business.
This summation of the formation of a company is a quick version of reality. However, this is
the view of how a company is formed.

Promoters
“A promoter is the one, who undertakes to form a company with reference to a given object
and sets it going and takes the necessary steps to accomplish that purpose,” Said by Justice
C.J. Cokburn. A promoter devises an idea setting up a business in a given place. He performs
various formalities which are required for starting a company. A promoter may be an
individual, firm, association of persons (AOP) or a company. A corporate’s promoter is a firm
or person who does the preliminary work (initial work) in relation to the formation of a
company. This includes its promotion, incorporation and inviting people to invest money in
the company, at the time of its formation. An investment banker, a stock promoter or an
underwriter may, wholly or in part, perform the task of a promoter. Promoters generally
guarantee a duty of utmost good faith, to not fraud any investors and disclose all facts about
the company's business.

Types of Promoters
There are importantly three types of Promoters, which are mentioned: -
Occasional Promoters
These promoters are not engaged in the promotion work on a regular basis. They take up
the promotion of companies and once it is complete, they resume their original profession.

Entrepreneur Promoters
They act as both promoters and entrepreneurs. They develop the idea of a new business
unit, do the base work to build it and may subsequently become a part of the management.

Financial Promoters
Financial institutions, like investment banks or industrial banks, might take up the promotion
of a company to find investment opportunities.

Promoter Activity
A promoter is the main creator of the business, Discovery of a business idea, Detailed
Investigation, Assembling the factors of Promotion, entering into preliminary contracts are
the duties of a promoter. A promoter starts a business from scratch.
As in the first stage of company promotion, a promoter formulates new ideas and makes an
assessment of the capability of a particular aspect of the business be it technical feasibility
or financial feasibility. In a detailed investigation, he investigates the profitability and
prospects of the growth of the proposed activity. Here, he may seek the help of specialists
such as lawyers or accountants. If the business is promising, he undertakes the risk of
forming the business, he takes steps to arrange various factors of production like the land,
labour or capital. The promoter also may enter into legal contracts with third parties for the
registration of a company. Even the promoter has to select a distinct, non-identical and
specific name for the company.

Lifting Of Corporate Veil Under Companies Act, 2013

The Companies Act, 2013 clarifies that a company is a separate entity distinct from its
members. But practically, it is an association of persons who are the beneficial owners of the
company and its corporate assets. This fiction is created by a veil termed the corporate veil.
Here, lifting the corporate veil under the Companies Act, 2013 means ignoring that a
company is a separate legal entity and has a corporate personality. Lifting of corporate veil as
per Companies Act, 2013 ignores the separate identity of the company and looks back at the
true owners who are in control of the company.
The separate personality is a regulatory advantage, and it must be used for a lawful purpose
only. Whenever and wherever a fraudulent use is made of the legal establishment, the
individuals will not be permitted to hide behind the curtain of corporate personality.
The concerned authority will break this company’s shell and sue the individuals who have
committed such an offence. This lifting of the curtain is called lifting the Corporate veil under
the Companies Act,2013.
Note- The Corporate Veil is a safeguard that protects the members from the company’s
action. In Layman’s terms, if a company violates any law or incurs any liability, the
members cannot be held liable. Thus, shareholders get protection from the acts of the
company.
Relevant Case Of Lifting Of Corporate Veil Under Companies Act, 2013-Solomon Vs.
Solomon And Co. Ltd.
In the given case, Salomon established a company named “Salomon & Co. Ltd.”, with seven
subscribers consisting of-
 Himself, His wife,
 Four sons and,
 One daughter.
Salomon was a secured creditor and shareholder of the company. There were other
unsecured creditors as well. After a while, the company incurred losses and decided to wind
up. During the winding-up process, the unsecured creditors claimed they should be paid
before Salomon (as a secured creditor) as it was his company.
The Basis On Which Corporate Veil Is Lifted Under Companies Act,2013
Below-mentioned are the grounds on which Corporate Veil is Lifted-
Under Companies Act,2013-
Misstatement In Prospectus
In a case where the company’s prospectus is misrepresented, the company and every
director, promoter, and every other individual, who authorized such issue of prospectus shall
be liable to compensate the loss to every person who subscribed for shares on the faith of
misstatement.
Also, these individuals may be punished with a jail term for a duration of not less than six
months. This duration may be extended to ten years. The concerned company and person
shall also be liable to a fine that shall not be less than the sum involved in the fraud but may
extend to three times the amount involved in the fraud.
Misdescription Of Name
As per the Companies Rule,2014, a company shall have its name printed on every official
document, including (hundis, promissory notes, BOE, and such other documents) as may be
mentioned.
Thus, where a company’s officer signs on behalf of the company any contract, BOE, Hundi,
promissory note or cheque or order for money, that individual shall be liable to the holder if
the name of the company is not properly mentioned.
Fraudulent Conduct
In case of winding up of a company, it comes out that any business has been carried on with
intent to cheat the creditors or any other individual, or for any illicit purpose, if the Tribunal
thinks it proper so to do, be directed in person liable without limitation to obligation for all
or any debts or other obligations of the company.
Liability under the fraudulent conduct may be imposed if it is proved that the company’s
business has been carried on misguiding the creditors.
Ultra-Vires Acts
Directors and other officers of a company will be held liable for all those acts they have
performed on the company’s behalf if the same is ultra vires the company.
Failure To Return The Application Money
In case of Public Issue, if minimum subscription, as per the prospectus, has not been
received within thirty days of the issue of prospectus or such other period as may be
mentioned, the application money shall be returned within fifteen days from the closure of
the issue.
However, suppose any the application money is not so repaid within such specified time. In
that case, the directors/officers of the company shall jointly and severally be liable to pay
that money with 15% per annum.
Additionally, the defaulter company and its officer shall be liable for a penalty of 1000rs/day
during which such default continues or Rs 100000, whichever is less.
Under other Statues-
Apart from the Companies Act,2013, the directors & other officers of the company may be
held personally accountable under the provisions of other statutes. For Instance, under the
Income-tax Act, 1962, where any private company is wound-up and if tax arrears in respect
of any income of any previous year cannot be recovered, every individual who was director
of that company during the relevant preceding year shall be jointly and severally
accountable for payment of tax.
Under Judicial Interpretation
While initially the court, based on the principle of the separate entity as well as a district
corporate persona, refused to lift the veil of corporate governance, However, due to the rise
of corporations and the ever-growing conflict between corporations and their different
stakeholders, courts have taken a more pragmatic strategy and have lifted the veil of
corporate governance.
It isn’t easy to record every court decision in which the veil was lifted. However, there are
various circumstances where the veil of corporate character can be taken off, and the people
who are behind the corporate entities could be found out and punished.
1. Improper conduct and Prevention of Fraud.
2. Formation of the Subsidiary company to act as Agent.
3. Economic offence
4. Revenue Protection
5. The company used it for illegal purposes.
6. Company ignoring welfare legislations.
 7. Company acting a mere fraud.

Types of Company
The Companies Act, 2013 differentiates companies based on the number of members. The
Micro, Small and Medium Enterprises (MSME) Act classifies companies into micro, small and
medium companies to grant them MSME benefits. Companies can also be classified based
on the liability of their members, company ownership and listing status. The various types of
companies based on different parameters are covered below.
Types of Company Under Companies Act, 2013
Entrepreneurs can register different types of companies under the Companies Act, 2013
(‘Act’) in India to conduct their business and provide a legal structure for the business. The
different types of companies are as follows:
One Person Company
The Act introduced the concept of a One Person Company (OPC). As per the Act, an OPC is a
company that has only one member. The member can also be the director of the company.
Though the OPC should have only one member, it can have a maximum of fifteen directors.
Private Limited Company
A private limited company is a company where there cannot be more than 200 members. A
minimum of two members are required to establish a private limited company. The
members cannot transfer their share, and it is suitable for businesses that prefer to register
as private entities. There needs to be a minimum of two directors, and there can be a
maximum of 15 directors in a private limited company.
Public Limited Company
A public limited company means a company where the general public can hold the company
shares. There is no maximum shareholders limit for a public limited company, but there
needs to be a minimum of seven members to establish a public company. The company
needs to have two directors and can have a maximum of fifteen directors.
Section 8 Company (NGO)
An association of persons or individuals can register a company under section 8 of the Act
for charitable purposes. These companies are established to promote commerce, science,
art, education, sports, research, religion, social welfare, charity, the protection of the
environment, or such other objects. The company should apply its profits and other incomes
to promote its activities. Such companies intend to prohibit any dividend payments to their
members.
Types of Companies Based on Size
The MSME Act classifies companies based on their size to give benefits provided by the
government for MSMEs. The differentiation of companies based on size to obtain MSME
benefits is as follows:
Micro Companies
A micro company is a company whose investment in plant and machinery does not exceed
Rs.1 crore, and the annual turnover does not exceed Rs.5 crore.
Small Companies
A small company is a company whose investment in plant and machinery does not exceed
Rs.10 crore, and the annual turnover does not exceed Rs.50 crore.
However, the Companies Act, 2013, also provides many benefits to small companies. A
company with a paid-up share capital of below Rs.2 crore and an annual turnover of below
Rs.20 crore is considered a small company under the Companies Act.
Medium Companies
A medium company is a company whose investment in plant and machinery does not
exceed Rs.50 crore, and the annual turnover does not exceed Rs.250 crore.
Types of Company Based on Liability
The members of a company have either limited or unlimited liability. The liability of the
company member arises at the time of bankruptcy, company loss, winding up or paying the
company’s debt. Thus, a company established under the Companies Act, 2013 can also be
classified based on the liability of its shareholders.
Limited By Shares
A company limited by shares means the liability of the company members is limited by the
Memorandum of Association (MOA). The company members are liable only for the unpaid
amount on the shares respectively held by them. The equity shares held by a member
measure the shareholder’s ownership in the company.
Limited by Guarantee
A company limited by guarantee means the member’s liability is limited to the amount they
guarantee to contribute towards the company’s assets. The member’s liability is limited by
the company MOA. The members undertake in the MOA to contribute the guaranteed
amount in the event of the company being wound up. The percentage of the member’s
ownership is based on the amount guaranteed by them.
Unlimited Company
An unlimited company means the company members do not have any limit on their liability.
If any debt arises, the member’s liability is unlimited and extends to their personal assets.
Usually, the company entrepreneurs choose not to incorporate this type of company.
Types of Company Based on Control
The companies can be classified based on the ownership structure and control as follows:
Holding Company
A holding company is a company having the majority of voting powers of another company
(subsidiary company). The holding company is the parent company controlling the subsidiary
company’s policies, assets and management decisions. However, it remains uninvolved in
the subsidiary’s day-to-day activities.
Subsidiary Company
A subsidiary company is owned by another company (holding company) either partially or
entirely. The holding company controls the composition of the board of directors of the
subsidiary company or more than 50% of its voting powers. Where a single holding company
holds 100% voting powers, the subsidiary is known as the Wholly Owned Subsidiary (WOS)
of the holding company.
Types of Company Based on Listing
The companies are classified into listed and unlisted companies based on access to capital.
Every listed company must be a public company, but vice versa need not be true. An unlisted
company can be a private or public limited company.
Listed Company
A listed company is a company which is registered on various recognised stock exchanges
within or outside India. The shares of the listed companies are freely traded on the stock
exchanges. They have to follow the guidelines given by the Securities Exchange Board of
India (SEBI).
A company that wishes to list its shares on stock exchanges should issue a prospectus to the
general public for subscribing to its debentures or shares. A company can list its shares
through an Initial Public Offer (IPO), while an already listed company can make a Further
Public Offer (FPO).
Unlisted Company
An unlisted company is a company that is not listed on any recognised stock exchange, and
its shares are not freely tradable on the stock exchanges. These companies fulfil their capital
requirements by obtaining funds from friends, family members, relatives, financial
institutions, or private placement. An unlisted company must convert to a public company
and issue a prospectus if it wishes to list its securities on the stock exchanges.

Characteristic features of a Company

 Corporate Body: A company needs to be registered under the Companies Act, 2013. Any other
organisation incorporated with the Registrar of Companies, and subsequently not registered cannot
be considered as a company.
 Separate Legal Entity: A company exists as a separate legal entity which is different from its
shareholders and members. Due to this feature, shareholders can enter into a contract with the
company and can also sue the company and be sued by the company.
 Limited Liability: As the company exists as a separate entity, members of the company are not
liable for the debts of the company. Liability of members of a company is limited to the extent of
the shares that are held by them or by the extent of the guarantee amount
 Transferability of Shares: Shareholders of a public limited company can transfer their shares as
per the rules laid down in the articles of association. However, in case of a private limited
company, there might be some restrictions on the transfer of shares.
 Common Seal: The firm is an artificial entity or a person, and therefore cannot sign its name by
itself. It creates the necessity of a common seal that can be used for representing the decisions
made on behalf of the company.
 Perpetual Succession: The company being an artificial person established by law perpetuates to
exist regardless of the differences in its membership. In simple words, a company is an artificial
person. Therefore, it does not have any restrictions on age. The factors like death, insolvency,
retirement or the insanity of one or all of the members do not impact the company status.
 Number of Members: As per the Companies Act, 2013, the minimum number of members
required to start a public limited company is seven while for a private limited company, it is two.
The maximum number of members for a public limited company can be unlimited while it is
restricted to 200 for a private limited company.