“CLASSIFICATION OF

COMPANIES(PART-II)”

SUBJECT : LEGAL ENVIRONMENT OF BUSINESS;

SUB-CODE: INM 582;LECTURE-3:
PROF.RAGHUNATH CHAKRABORTY.
On the basis of number of members a company can
be classified as :

1. One person company: With increasing use of information

technology and computers, emergence of the service sector, it is
time that the entrepreneurial capabilities of the people are given an
outlet for participation in economic activity. Such economic activity
may take place through the creation of an economic person in the
form of a company. Yet it would not be reasonable to expect that
every entrepreneur who is capable of developing his ideas and
participating in the market place should do it through an
association of persons. We feel that it is possible for individuals to
operate in the economic domain and contribute effectively. To
facilitate this, the Committee recommends that the law should
recognize the formation of a single person economic entity in the
form of “One Person Company”.
 On the basis of number of members (Continued):

2. Private company :A private company is that company

which by its articles of association limits the number of
its members to fifty, excluding employees who are
members or ex-employees who were and continue to be
members; restricts the right of transfer of shares, if any;
prohibits any invitation to the public to subscribe for any
shares or debentures of the company. Where two or
more persons hold share jointly, they are treated as a
single member. According to, the minimum number of
members to form a private company is two. A private
company must use the word “Pvt” after its name.
On the basis of number of members (Continued):

Private companies represent a different set of

relationships in terms of ownership, risk and reward
as compared to public companies. A Private Company
has been described as an incorporated partnership,
combining the advantages of the privacy of
partnership and the permanence and origin of the
corporate constitution. Private Companies can keep
their affairs to themselves. Private Companies exist
with the sanction and encouragement of the
Legislature. They enjoy the benediction of the
Legislature.
 On the basis of number of members (Continued):

Characteristics or Features of a Private Company. The main

features of a private of a private company are as follows :
 A private company restricts the right of transfer of its shares. The shares of a
private company are not as freely transferable as those of public companies.
The articles generally state that whenever a shareholder of a Private Company
wants to transfer his shares, he must first offer them to the existing members
of the existing members of the company. The price of the shares is determined
by the directors. It is done so as to preserve the family nature of the
company's shareholders.
It limits the number of its members to fifty excluding members who are
employees or ex-employees who were and continue to be the member. Where
two or more persons hold share jointly they are treated as a single member.
The minimum number of members to form a private company is two.
A private company cannot invite the public to subscribe for its capital or
shares of debentures. It has to make its own private arrangement.
 On the basis of number of members (Continued):

3.Public companies: A company which is not a private company and has

minimum paid up capital of 5 lakh rupees or more, or a private company
which is a subsidiary of a company which is not a private company. Public
company may be said to be an association consisting of not less than seven
members, which is registered under the Companies Act and which is not a
private company within the meaning of the Act. The shares and debentures
of a public company may be listed on a Stock Exchange and are offered to
public for sale.
There is no restriction on transfer of shares in case of public company. A
Public Company having a share capital shall file with the Registrar a
statement in lieu of prospectus signed by all the directors named therein, in
case it has not issued a prospectus36. A Public company cannot commence
its business unless certificate to commence business is issued by the
Registrar of Companies in accordance with Section 149 of the Companies
Act.
 On the basis of membership pattern and manner of access to capital

1. Listed Company: Company whose shares are traded on an on an official

stock exchange. It means a public company which has its securities
listed on any recognized stock exchange. A company is said to be “listed”
,”quoted” or “have a listing” if its shares can be traded on a stock
exchange. It is also known as Quoted Company. It must adhere to the
listing requirements of that exchange, which may include how many
shares are listed and a minimum earnings level. After the amendment
made in the year 2000, every list company making initial public offer of
any security for a sum of rupees ten crores or more, shall issue the same
only in dematerialized form by complying with the requisite provisions
of the Depositories Act, 1996. A listed public company may, and in the
case of resolutions relating to such business as the Central Government
may, by notification, declare to be conducted only by postal ballot, shall,
get any resolution passed by means of a postal ballot, instead of
transacting the business in general meeting of the company.
 On the basis of membership pattern and manner of
access to capital (Continued)

2. Unlisted Company: A Public company whose shares are not on

the official list of shares traded on a particular stock market. A
publicly unlisted company is a company that can have an
unlimited number of shareholders to raise capital for any
commercial venture. Companies which are not listed publicly
are more likely to engage in profit maximizing behaviour as
their share capital structure makes it very easy to give its
members financial returns. Unlisted companies are usually too
small to qualify for a stock exchange listing, and do not usually
advertise for investors. However they tend to be larger than
companies limited by guarantee. Unlisted companies are very
small and do not trade on an exchange because they do not
meet
On the basis of membership pattern and manner of
access to capital (Continued)

market capitalization requirements. The

Government of India have passed the Unlisted Public
Companies Amendment Rules, 2011 for the
preferential allotment in the unlisted public
companies.
 On the basis of Control over the management

1. Holding Company: A company is known as the

holding company of another company if it has
control over the other company. A company
qualifies as a holding company when it has the
power to control the composition of the board of
directors of another company or holds a majority of
its shares. According to Sec 4(4) a company is
deemed to be the holding company of another if,
but only if that other is its subsidiary.
 On the basis of Control over the management

2. Subsidiary Company: A company is known as a

subsidiary of another company when its control is
exercised by the latter (called holding company)
over the former called a subsidiary company. Where
a company (company S) is subsidiary of another
company (say Company H), the former (Company
S) becomes the subsidiary of the controlling
company (company H).It is a company whose
parent is a majority shareholder. For the purposes
of liability, taxation and regulation, subsidiaries are
distinct legal entities.
 On the basis of Control over the management

3. Associate Company: Associate is used synonymously to

describe a company whose parent only possesses a minority
stake in the ownership of the company.
 On the basis of Ownership of companies

1. Government Companies. 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. The staff members of the
company are not the Government employees and hence, the
Government is not liable to pay the salary of the staff of a
Government Company. The auditors of the government company
are appointed by the government on the advice of the Comptroller
and Auditor General of India. The Annual Report along with the
auditor's report is placed before both the House of the parliament.
On the basis of Ownership of companies (Continued)

2. 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. Some of the example of Non-Government
Companies are- Reliance Industries Limited, WIPRO
Limited etc.
On the basis of Nationality of the Company

1. Indian Companies: These companies are registered in India

under the Companies Act. 1956 and have their registered office in
India. Nationality of the members in their case is immaterial.
2. Foreign Companies: It means any company incorporated
outside India which has an established place of business in India.
The Court has considered the extent of business which has to be
carried on to make “a place of business” for the purpose to
establish a sufficient presence within the jurisdiction for service of
process. A company has an established place of business in India
if it has a specified place at which it carries on business such as an
office, store house or other premises with some visible indication
premises. Section 592 to 602 of Companies Act, 1956 contain
provisions applicable to foreign companies functioning in India.
 CONCLUSION:

In today’s Lecture I have discussed the continuation

part of the types of Companies. And, Basic types I
have discussed up to ‘On the basis of Nationality.
In tomorrow’s Lecture I will continue with the
Incorporation, Memorandum, Articles & Various
Doctrines of Company form of Business.
For your Self study & home study purpose I will
convey few Study Materials.
Feel free to discuss over phone if you are not getting
any point.