Unit – iv COMPANy law

TYPES OF COMPANIES Public company companies limited by guarantee Unlimited companies Not having share capital Companies limited by shares Private company Having share capital Unlisted company Listed company Other then single member company Single member company Registered Companies Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Classification of Companies Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

On the Basis of Incorporation Chartered Companies Statutory Companies Registered Companies Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

On the Basis of Liability Unlimited Companies Companies limited by Guarantee Companies limited by shares Companies limited by shares and Guarantee Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

On the Basis of Membership Private Company Public Company Holding Company Subsidiary Company Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Private Company A company which has a min. paid-up capital of Rs.100,000 and by its Articles – (a) restricts the right to transfer its shares; (b) limits the number of its members to fifty; (c) prohibits any invitation to subscribe for any shares in, or debentures of the company; and (d) prohibits any invitation or acceptance of deposits from public. [Sec 3(1)(iii)] Must necessarily have its own Articles of Association. Should have at least two directors. The word 'Private Limited' must be added at the end of its name. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Conversion of a private company into a public company Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Conversion by default Where a default is made by in complying with the provisions of Section 3(1)(iii), i.e. restriction on transfer of shares; limitation of the number of members to fifty; prohibition of invitation to the public to buy shares or debentures; and prohibition of invitation or acceptance of deposits from the public; The company ceases to enjoy the privileges and exemptions conferred on a private company. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Conversion by operation of law Where not less than 25% of its paid-up capital is held by one or more bodies corporate; or where the annual average turnover is not less than Rs 25 crores or more for three consecutive financial years; or where a private company holds 25% of the paid-up capital of a public company; or where a private company accepts, or renews deposits from the public. In case a private company becomes a public company, it shall inform the RoC within three months. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Public Company A Public Company means a company which - is not a Private Company; has a minimum paid-up capital of Rs 5 lakhs or such higher capital as may be prescribed; is a private company which is a subsidiary of a company which is not a private company. [S. 3 (1) (iv)] It consists of not less than seven members and three directors. Distinction between a public company and a private company. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Holding & Subsidiary Company A company is deemed to be the holding company of another if, but only if, that other is its subsidiary." [Sec 4(4)] Where a company controls the composition of Board of Directors of another company, the latter becomes the subsidiary of the former; or When a company holds more than half of the equity capital of another company, the latter becomes the subsidiary company of the former; or Where a company is subsidiary of another company which is itself a subsidiary of the controlling company, the former becomes the subsidiary of the controlling company. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Government Company A Government Company means any company in which not less than 51 per cent of the paid-up share capital is held by (a) the Central Government, or (b) any State Government or Governments, or (c) partly by the Central Government and partly by one or more State Governments. A subsidiary of a Government company is also called a Government company. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Statutory Corporations Formed under an Act of Parliament or State Legislature. Change in its structure is possible only by a legislative amendment. Immunity from Parliamentary scrutiny in day-today working. Freedom in regard to personnel, its employees are not civil servants. It is a body corporate having characteristics of a corporation. Independent finances- Obtains funds by borrowing and through revenue derived from sale of goods/services. Commercial Audit - audit is entrusted to CAG. Operation on business principles. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Foreign Companies Incorporated in a country outside India and has a place of business in India. Every foreign company shall, within 30 days, file with RoC the following documents: A certified copy of the Charter, Statutes, Memorandum and Articles of the company in English. The full address of the registered or principal office of the company. A list of the directors and secretary of the company. The names and addresses of any person/s resident in India, authorised to accept notices. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Foreign Companies The full address of the principal place of business in India. The documents which a foreign company has to file with the Registrar, shall be delivered to the Registrar of the state where the principal place of business of the company is situated and also with the Registrar at New Delhi. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Section 25 Companies The object is to promote a social cause. May earn profits but not allowed to distribute it as dividend to members. License granted by Central Government. Not required to use the word Ltd. or Pvt. Ltd. Registered without paying stamp duty on Memorandum and Articles. Cannot alter its object without previous approval of Central Government. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES Registered Company Registered companies are those companies which are registered in India under the Companies Ordinance or any previous companies act or ordinance. These companies are further classified into following three broad classifications.[15(2)] Company limited by shares Company limited by guarantee Unlimited company Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES Company Limited by Shares: It means a company memorandum of association limits the liabilities of its members to the amount unpaid, if any, on the shares held by them in the capital of the company. It is the most popular and important among the registered companies It is a company which keeps the liability of its members limited up to the value of the shares purchased by them It is essential for such companies to use the word Limited at the end of their names so that the people know the liability of its members is limited Most of the industrial and commercial companies in India are registered as companies limited by shares. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES Company Limited by Guarantee: It means a company whose memorandum of association limits the liabilities of its members to the amount as the members may respectively undertake to contribute to the assets of the company in the event of its winding up. This company may or may not have a share capital. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES Unlimited Company: It is a company which is registered without limiting the liability of its members to the extent of value of the shares held by them. In other words, in case if such companies there is no limit of liability of members to contribute the assets on a winding up. Now-a-days such type of companies are not found in India. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

On The Basis Of Articles Of Association By virtue of provisions of articles, companies can further be divided into the following categories Private Company Section 2(1)(28) defines a private limited company as a company which by its articles: Restrict the rights to transfer its shares, If any; Limits the maximum number of its members to fifty; and Prohibits any invitation to the public to subscribe for the shares or debentures of the company Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Public Company It is a company which is not a private company. It is a company which does not : limits the maximum numbers of its members; Restrict the right to transfer its shares, if any; and Prohibit from inviting public to subscribe for the shares or debentures of the company. A public limited company can be formed with at least 3 members. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Difference between private and public company: Private company A public company should have at least three (3) members in case of unlisted And (7) members in case of listed company. A private company should have at least two (2) members except single member company (SMC) Maximum members can not exceed fifty (50) how however the employee members are not counted for the purpose of deciding upper limit There is no restriction on the maximum no of members A public company can invite subscription from general public A private company cannot invite subscription from general public A public company can transfer its shares with out any restriction Transfer of shares is restricted in private company A public company has to seek certificate for commencement of business No such certificate is required and it can commence business just after is incorporation Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Public Company Private Company The public company has to raise minimum subscription before obtaining certificate for commencement of business. Private Company There is no requirement to raise minimum subscription. There is no requirement of filing prospectus or statement in lieu of prospectus for a private company except when private company converts into public company A public company is required to file the prospectus or a statement in lieu of prospectus (SILOP) for obtaining the certificate for commencement of business Filing of accounts is not required by the private company if its paid up capital is less than 7.5 million rupees A public company is required to file its accounts with the registrar and also with the commission if it is listed. No qualification is prescribed for an auditor of a private company except when it has a paid up capital exceeding RS 3million. Auditors qualification is presented as chartered accountants. A public company should have at least three (3)directors in case of unlisted company and seven (7)directors in case of unlisted. A private company should have least two (2)directors except single member company (SMC). Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Public limited companies may further be classified in two categories. Listed Companies: The companies whose securities are allowed to be treated on a stock exchange are called listed companies. Un-Listed Companies: The companies whose securities are not allowed to be treated on a stock exchange are called un-listed companies. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

On the basis of company of shareholding: On the basis of composition of share holding ,companies can be classified in any of the following types Holding company[section 3]: It means a company or body which holds directly or in directly more than fifty percent (50%)in the voting securities of a company ,or has a power to elect and appoint more than fifty percent (50%)of the directors of such other company Subsidiary company[section 3]: It means a company or a body corporate whose more than fifty percent (50%) voting securities are held or controlled directly or indirectly ,by some other company or such other company has a power to elect and appoint more than fifty percent of directors of such company Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Associated companies [section 2(1)(2)]: A company whose 20% or more shares (upto50%) are held by another company shall be considered an associated company of that company (for complete definition of an association company ) Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Associations not for profit [section 42]: If the securities and exchange commission of India is satisfied with an association which has been formed or is capable of being formed as a limited company that it meets the conditions specified by companies ordinance 1984 ,the companies may grant a License and direct that the association be registered as a limited company with out the addition of word “limited”,”(private ) limited ”or “(guarantee) limited” as the case may be, to its name and the association may be registered accordingly Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES BY VIRTURE OF LEGAL FORM Statutory company By virtue of legal form companies can be classified in the following types Statutory company The companies which are formed under special statutes are called statutory companies . These are governed by the acts or ordinances through which these are created. Examples of such type of companies are the State Bank of India, Small Business Finance Corporation, Investment Corporation of India, etc. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

TYPES OF COMPANIES Chartered Company Chartered Companies are formed by the means of a special charter granted by the head of state, or King or queen of the crown. Normally these enjoy certain exclusive rights and privileges on other association of persons. The east India Company and Charted Bank of England are examples of such type of companies. Prior to the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks) Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Government Company A government Company is a company of which more than 50 percent of the paid up capital is held by the government. A company which is subsidiary of a government company automatically becomes a government company. Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018

Unit IV– Company Law, Legal Aspects of Business - Mr. K Unit IV– Company Law, Legal Aspects of Business - Mr.K.Mohan Kumar, AP/MBA 8/27/2018