Module :2 COMPANIES ACT 1956

What is a company A company is an artificial person created by law. A company means a group of persons associated together for the attainment of a common end, social or economic. The company means a company formed and registered under this act or an existing company

Definition of a company According to Sec (1), “A company formed and registered under the act”. According to Sec (3) of the act, “on incorporation a company becomes a body corporate or a corporation with a perpetual succession and a common seal.” According to N.D.Kapoor,” IT is a voluntary association of persons formed for some common purpose, with capital divisible into parts, known as shares, and with a limited liability. It is a creation of the law and is sometimes known as an artificial person with a perpetual succession and a common seal. IT exists only in the eyes of the law, I.e., it is regarded by the law as person, just as a human being. But it has no physical existence.”

CHARACTERISTICS OF A COMPNAY Separate legal entity Limited liability Perceptual succession Common seal Transferability of shares Separate property Capacity to sue

Types of Company Private and public company Limited and unlimited company Holding and subsidiary company Government company Foreign company

Private Company [Section 3(1)(iii)] A private company means a company which has a minimum paid up capital of one lakh rupees or such higher paid-up capital as may be prescribed and by its articles : (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to 50, (not including its employee members)

Private Company …contd. (i) persons who are in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; prohibits invitation to the public to subscribe for any shares in or debentures of, the company; and

Private Company …contd. (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. Where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of membership, be treated as a single member.

Public Company [Section 3(1)(iv)] A public company means a company which: is not a private company [In other words, it should not have the restrictions of Section 3(1)(iii) in its articles ]; (b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed; and (c) By its articles does not restricts the right to transfer its share ,if any;

Public Company …..con d) By its articles does not limits the number of its member (e) By its articles does not prohibits invitation to the public to subscribe for any shares or debentures of the company

Limited and Unlimited Companies A limited company is one wherein the liability of its members is limited any future be sub-classified as below A company limited by shares A company limited by guarantee Unlimited companies

Subsidiary companies According to sec 4(7), a company is known as subsidiary company of another company when control is exercised by the later company it controls the composition of its board of directors; A company holding majority of shares For example:- if a company B is subsidiary of the company A, and Company C is subsidiary of the company B, therefore company C is also subsidiary of the company A

Holding company According to sec 4(4), a company is known as holding company of another company if it has control over that other company

Government company A Government company is one in which either the Central Government or the State Governments taken together hold not less than 51% of its paid-up capital. The term further includes a subsidiary of such a Government company.

A Government company may be incorporated as a private company or a public company. A Government company is governed by the provisions of the Companies Act unless exempted by the Central Government under powers conferred under section 620. The Central Government has exempted the Government companies from most of the provisions of the Companies Act.

A foreign company means a company incorporated outside India but having a place of business in India. ( sec 591(1)) A foreign company is required to furnish to the Registrar documents specified in section 592. Besides, it is subjected to certain obligations spelt out under sections 594, 595,600, 603-608. Where foreign companies in which more than 50% the paid-up share capital is in Indian hands, section 591(2) provides that it should be, for its business in India, treated as a Indian company. A foreign company if it ceases to carry on business in India, may be wound up as an unregistered company.

KINDS OF COMPANIES Private Company Public Company BASED ON “MEMBERSHIP” Private Company -Min no. of members: 2 -Max no. of members: 50 -Restricts right to transfer its shares -Prohibits public issue of shares or debentures Public Company -Min no. of members: 7 -Max no. of members: Unlimited -Doesn’t restrict right to transfer its shares -Doesn’t Prohibit public issue of shares or debentures

Case Ajay wants to set up a company to run a consulting business. a. Can he form a company alone? How many more people would he need to form a private company? b. What is the minimum amount of money the founding members would need to raise to form a private company?

KINDS OF COMPANIES ( contd…) BASED ON “INCORPORATION” Chartered companies -companies which are incorporated under a special charter granted by the king or queen in exercise of royal power. -East India Company(1600) Statutory Companies -which are created by special act of parliament or state legislature at central or state govt. level -Reserve Bank of India Registered Companies – are companies which are registered under the co.’s act of 1956

KINDS OF COMPANIES ( contd…) BASED ON “LIABILITIES” Co.’s limited by SHARES –companies in which the liability of its members is limited to the extent of the amount unpaid on the shares held by a particular member. Co.’s limited by GUARENTEE -the liability of members is limited to a fixed amount which members undertake to contribute to the assets of the company in case of its winding up. Unlimited Co.’s –wherein members are liable for the debts of the company irrespective of their interest in the company

BASED ON “CONTROL” Holding Company -51% of the share capital Subsidiary Company –less that 51% Govt. Companies – MNTC, ONGC Foreign Companies – IBM, MICROSOFT