COMPANY LAW

CHAPTER 3

Kinds of Companies
KINDS OF COMPANIES
CLASSIFICATION

 Chartered companies
 Statutory companies.
Registered Companies limited by shares.
(a) Companies limited by guarantee.
(b) Unlimited or Incorporated companies.
(c) companies.
PRIVATE COMPANIES

As per Sec 2(68) of the Companies Act, 2013- a company which has a minimum
paid-up capital as may be prescribed, and by its articles :—
 restricts the right to transfer its shares ;
 limits the numbers of its members to two hundred (excluding members who are
or were in the employment of the company) ; [Maximum no. has been increased
from 50 to 200 as per Companies Act, 2013].
 prohibits any invitation to the public to subscribe for any shares or debentures
of the company; and
Note. Companies (Amendment) Act, 2015 has amended section 2(68) of the
Companies Act, 2013. Now there is no requirement of minimum paid up capital for a
private company. [w.e.f. 29-5-15]
FEATURES OF PRIVATE COMPANY
o Restriction on transfer of shares [Sec. 2(68)(i)].
o Limitation of membership [Sec. 2(68)(ii)].
o Prohibition on inviting Public to Subscribe for Securities [Sec. 2 (68) (ii)].
Other requirements for a private company
o It may be noted that there should be minimum of two persons to form a private
company. According to section 3, for forming a private company, two or more
persons are required to subscribe their names to a Memorandum of Association.
o Any person who is competent to contract can be a subscriber. A company being
a legal person can subscribe but a partnership firm cannot do so.
o A minor cannot be a signatory to the Memorandum since he is not competent to
contract. A private company must write at the end of its name ‘private limited’ or
any other acceptable abbreviation, such as ‘Pvt. Ltd.’.
o If a private company fails to company with any of the restrictions contained in the
articles, it ceases be entitled to some of the privileges of a private company.
PUBLIC COMPANY [SEC. 2(71)].

According to the Section 2(71) of the Companies Act, 2013, A public company
means a company which
 is not a private company
 has a minimum paid-up capital, as may be prescribed
 is a private company which is a subsidiary of a public company.
 Thus, a public company is one that is not a private company.

Note. As per Companies (Amendment) Act 2015, there is no requirement of

minimum paid up capital for a Public Company (w.e.f. 29/5/15).
PRIVILEGES OF A PRIVATE COMPANY

 Number of Members
 Minimum Number of Directors
 Quorum for General Meeting
 Rotation of Directors
 Managerial Remuneration
 Special disqualifications for appointment as directors
 Rotational Retirement of Directors
 Filling casual vacancies
 Independent Directors
 Audit Committee
WHEN A PRIVATE COMPANY LOSES ITS
PRIVILEGES ?

A private company loses its privileges

when it fails to comply with the
essential requirements of a private
company as given in section 2(68).
Default in complying with the said
provisions shall disentitle a private
company from the privileges and
exemptions it is entitled to. Also when
a private company ceases to be a
private company by choice or by
operation of law, it loses its privileges
DISADVANTAGES OF A PRIVATE COMPANY

 A private company cannot issue share warrants payable to bearer.

 U/s 92, a private company has to file its annual list of member and
summary with the registrar.
 A private company’s member cannot appoint more than one proxy to
attend and note in the company meeting.
 A private company has to send certificate to Registrar stating its annual
turnover in the preceding 3 years never reached rupees one crore or
more.
DISTINCTION BETWEEN A PUBLIC COMPANY AND A
PRIVATE COMPANY
CONVERSION OF A PUBLIC COMPANY INTO
A PRIVATE COMPANY

Special Resolution

Name of the Company

Approval of the Tribunal

Filing with the Registrar

CONVERSION OF A PRIVATE COMPANY INTO
A PUBLIC COMPANY

Special Changing the Approval of Filing with

Resolution. Name the Tribunal the Registrar
CONVERSION OF COMPANIES ALREADY
REGISTERED
 Section 18 of the Companies Act, 2013 provides that a company of any class
registered under this Act may re-register itself as a company of other class
under this Act by alteration of memorandum and articles of the company in
accordance with the provisions of Chapter II of the Act.
 The registration of a company under this section shall not affect any debts,
liabilities, obligations or contracts incurred or entered into, by or on behalf of the
company before re-registration and such debts, liabilities, obligations and
contracts may be enforced in the manner as if such registration had not been
done.
ONE PERSON COMPANY

 Section 2(62) of the Act defines one person company. As the name suggests,
it means a company which has only one person as a member and where
legal and financial liability is limited to the company only and not to that
person (i.e., liability is limited).
 Section 2(68) of the Act provides for the definition of a private company to
include one person company. This implies that all the provisions of the Act
applicable to a private company shall also be applicable to an one person
company, unless otherwise excluded from the compliance.
FORMATION OF ONE PERSON COMPANY

 Subscription of name to memorandum

 Only an Indian citizen and resident of India is eligible to incorporate a one
person company
 Nomination to be filed with ROC at the time of incorporation along with MOA
and AOA to ensure smooth perpetual succession of OPCs.
 The nominee person may withdraw his consent in such manner as may be
prescribed. (Second proviso to section 3(1) of the 2013 Act).
 The member of the OPC may at any time change the nominee in such manner
as may be prescribed. (Third proviso to section 3(1) of the 2013 Act).
 CONVERSION OF OPC INTO PRIVATE CONVERSION OF PRIVATE COMPANY
COMPANY OR PUBLIC COMPANY INTO ONE PERSON COMPANY
One Person Company to convert itself into a A private company other than a company
public company or a private company in certain registered under section 8 of the Act
cases. having paid up share capital of fifty lakhs
rupees or less or average annual
turnover during the relevant period is two
crore rupees or less may convert itself
into one person company by passing a
special resolution in the general meeting.
Where the paid up share capital of an One Person
Company exceeds fifty lakh rupees or its average
annual turnover during the relevant period exceeds
two crore rupees
A One Person company can get itself converted
into a Private or Public company after increasing
the minimum number of members and directors to
two or minimum of seven members and two or
three directors as the case may be
GOVERNMENT COMPANIES

Section 2(45) of the Companies Act defines a government company to mean

any company in which not less than 51% of the paid-up share capital is held
by :
 the Central Government ; or
 any State Government or Governments ; or
 partly by the Central Government and partly by one or more State
Governments. A subsidiary of a government company will also be treated
as a government company.
Bharat Heavy Electricals Ltd., State Trading Corporation of India Ltd. are
examples of government companies
FOREIGN COMPANIES [SEC. 2(42)]

 Section 2(42) of the Companies Act, 2013 defines foreign

company as, “any company or body corporate incorporated
outside India which –
 has a place of business in India whether by itself or through an
agent, physically or through electronic mode ;and
 conducts any business activity in India in any other manner.
HOLDING AND SUBSIDIARY COMPANIES

Holding Company. According to section 2(46) of the Companies Act, 2013,

“holding company”, in relation to one or more other companies, means a
company of which such companies are subsidiary companies.
Subsidiary Company. According to section 2(87) of the Companies Act, a
“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 :
 controls the composition of the Board of Directors; or
 exercises or controls more than one-half of the total share capital either at
its own or together with one or more of its subsidiary companies. Total
share capital means paid up equity share capital and paid up preference
share capital.
FORMATION OF COMPANIES WITH
CHARITABLE OBJECTS
Section 4 of the Companies Act, 2013 requires that the name of a public
company must end with word ‘limited’ and in the case of a private company with
the words ‘private limited’. Section 8, however, provides that the Central
Government may by licence direct that any association be registered as a
company with limited liability without using the words ‘limited’ or the words
‘private limited’.
 the association about to be formed as limited company aims at the
promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other
object; and
 it intends to apply its profits, if any, in promoting its objects; and
 it prohibits the payment of any dividend to its members.
EMERGING KINDS OF COMPANIES

1. Small Company [Section 2(85)]

According to section 2(85) of the Companies Act, small company means a company,
other than a public company :
 paid up share capital of which does not exceed 50 lakh rupees or such higher
amount as may be prescribed which shall not be more than five crore rupees; or
 turnover of which as per its last profit and loss account does not exceed two crore
rupees or such higher amount as may be prescribed which shall not be more than
twenty crore rupees.
2. Listed Company [Section 2(52)]
A listed company, according to Section 2(52) of the Companies Act, means a company
which has any of its securities listed or any recognized stock exchange.
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3. Dormant Company (Section 455)

 According to Section 455 of the Companies Act, where a company is
formed and registered under the Companies Act, 2013 for a future project
or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company may
make an application to the Registrar seeking the status of a dormant
company.
 The term inactive company means a company which has not been
carrying on any business or operation, or has not made any significant
accounting transaction during the last two financial years, or has not filed
financial statements and annual returns during the last two financial years.
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4. Unregistered Companies (Section 375)

According to section 375 of the Companies Act, an unregistered company is
defined as to include any partnership firm, limited liability partnership or
society or co-operative society, association or company consisting of more
than seven members at the time when the petition for winding up the
partnership firm, limited liability partnership or society or co-operative society,
association or company, as the case may be, is presented before the
Tribunal.
5. Public Financial Institution [Section 2(72)]
According to section 2(72), the following financial institutions shall be
regarded, for the purposes of this Act, as public financial institution :
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 the Life Insurance Corporation of India, established under section 3 of

the Life Insurance Corporation Act, 1956 ;
 the Infrastructure Development Finance Company Limited, referred to in
clause (vi) of sub-section (1) of Section 4A of the Companies Act, 1956
so repealed under section 465 of this Act ;
 specified company referred to in the Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002 ;
 institutions notified by the Central Government under sub-section (2) of
section 4A of the Companies Act, 1956 so repealed under section 465 of
this Act ; such other institution as may be notified by the Central
Government in consultation with the Reserve Bank of India. However, no
institution shall be so notified unless –
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 it has been established or constituted by or under any Central or

State Act ; or
 not less than fifty-one per cent of the paid-up share capital is held or
controlled by the Central Government or by any State Government or
Governments or partly by the Central Government and partly by one
or more State Governments.
6. Associate Company [Sec. 2(6)]
Associate Company, in relation to another company, means a company in
which that other company has significant influence, but which is not a
subsidiary company of the company having such influence and includes a
joint venture company.
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ILLEGAL ASSOCIATIONS
The law requires these associations to be compulsorily registered under the
Companies Act, before they can function as legal associations. It is provided
that association or partnership consisting of more than 10 persons in case of
banking business or more than 20 persons in the case of any other business
which has for its objects the acquisition of gain can be legally formed unless
it is registered under the Companies Act or is formed in pursuance of some
other Indian law. If they are not so registered they would be considered as
illegal associations.
PRODUCER COMPANIES
According to Section 581A(l), a producer company means a body corporate
having objects or activities specified in Section 581B and registered as
producer company under this Act.
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