Classification on basis of incorporation

• Statutory Companies

• * Created by special act of the legislature

• * Ex. RBI, LIC,Railways etc.

• * Mostly public utilities and of national importance

• * Provisions of company act 1956 applicable on them, if they are not inconsistent with the provisions of special act under which they are

formed

• Registered companies

* These companies are formed and registered under companies act 1956.

* Most commonly found companies are registered companies

On the basis of liability

• Companies with Limited liability

• This is of two types

1. Companies limited by shares2. Companies Limited by guarantee

• Companies with Unlimited Liability

Limited liability

• Companies limited by Shares:

* The liability of members of a company is limited to the amount unpaid on the shares, such a company is known as one limited by shares.* The liability can be enforced during the existence of the company as also during the winding* If shares are fully paid liability is nil * It may be a private or a public company

• Companies Limited by guarantee* Liability of members is limited to a fixed amount

which the members undertake to contribute to the assets of the company in case of it being wound up.

* Has a legal personality different from its members* The liability of members is limited* The articles of such a company must state the number of members with which the company is registered* They are not formed with the purpose of profit but

for promotion of art ,culture etc.

• Unlimited Companies* Sec 12 provides that any 7 or more persons (2 or

more in case of pvt. Co.) may form an incorporated co. with or without limited liability.

* Co. without liability is known as unlimited co.* Every member is liable for the debts of the co., as in

ordinary partnership in proportion to the interest in the company* It may or may not have share capital* It may be public or private * Must have its own articles of association.

Classification on basis of members

• Private Company : It is also called close corporation• A company which has a share capital of Rs. 1,00,000 or

such higher paid up capital as may be prescribed and by its articles

• Restricts the right to transfer its shares if any, this meant to preserve the private character.

• Limits the number of members to 50 not including its employee members (present and past)

• Prohibits any invitation to public to subscribe fro any shares in or debenture of the company.

• Prohibits ant invitation or acceptance of deposit from persons other than its members, directors or relatives.

• Every private company existing on commencement of companies (amendment) act 2000 with a paid up capital of less than Rs. 100,000 shall within a period of two years enhance its paid up capital to Rs. 100,000

• The debenture holders in co. may excedd 50, only condition pvt. Co. cannot issue debenture to public at large.

• Joint holders are treated as a single member.• Must have its own articles of association.

• Public Company• Means a company that has a minimum paid up

capital of Rs.5 Lakh or such high paid up capital as may be prescribed:

• Is a private company which is a subsidiary of a company which is not a private company

• Every public company with a paid up of share capital of less 5 lakh shall within a period of two years from such commencement enhance its paid up capital to 5 lakh.

Distinction between public co. and private Co.

Difference Private Public

Minimum Capital

Rs.1 lakh Rs. 5 Lakh

Minimum member

2 7

Maximum Number

50 No restriction

No. of Directors Must have at least 3 Directors

Must have 2 directors

Restriction on appointment of directors

Directors must file with registrar a consent to act as director or sign an undertaking for qualification of shares

Need not do so

Restriction on invitation to prescribe for shares

Invites public to subscribe

By its AOA prohibits such an invitation

Transferability shares and debentures

Are freely transferable Right to transfer restricted by article

Privileges No such privileges SOME SPECIAL PRIVILEGES

Quorum If the articles of a company do not provide for a large quorum a minimum of 5 members

2 in this case

Managerial Remuneration

Cannot exceed 11% of the net profit

No such restriction

Special Privileges of a private company

• No. of members : May have only 2 members• Allotment before minimum subscription: A

private company can allot shares before the minimum subscription is subscribed or paid for

• Prospectus or statements in lieu of prospectus : A private co. may issue shares without issuing a prospectus or delivering to the registrar a statement in lieu of prospectus.

• Issue of new shares: A public company issues new shares after expiry of two years after its formation or at any time after the expiry of 1 year from the date of first allotment of shares whichever is earlier, private company has to offer these shares to existing share holders on pro rata basis.

• Kinds of shares : Can issue share capital of any kind and with such voting rights.

• Commencement of business : A private company can commence business immediately after formation

• Index of members : Need not keep index of members

• Statutory meeting and statutory report : need hold and need not make reports

• Demand for poll : Even one member present and having voting right may demand poll

• Managerial remuneration :Rule of maximum remuneration does not apply to private company

• No. of directors : Need not have more than 2 directors

• Rules regarding director : Rules are less stringent, need not file with registrar the consent of director to act as such.

• Legal position of private company in most respects is similar to public company even if one person holds all the shares the company is a distinct person.

When does private company becomes a public company

• Conversion by default : When default is made by a private company in complying with essential requirements of a private company , the company ceases to enjoy the privileges. In such a case the provision of the companies act apply to it as if it were not a private company.

• Conversion by choice or Volition : If a company so alters its articles that they do not contain provision that makes it a private company , it shall cease to be a private company. It shall then file with registrar within 30 days either a prospectus or statement in lieu of prospectus.

• Thus a private company becomes public:

* By filing with registrar

* Taking steps to raise its membership to atleast 7.

* Alter the regulation in articles to be consistent with public company

• Conversion of public into private : A public company may become private by passing special resolution. The reslution should be to change the article to condition as prescribed to make the company private.

Classification on basis of control

• Holding Company : • A company is known as holding company

of another company when control is exercised by the latter over the former called a subsidiary company

• A company is deemed to be holding company of another if but only if that the other is a subsidiary.

• Subsidiary company

• A company is known as subsidiary company when control is exercised by the latter (called holding company) over the former called a subsidiary company.

• A company is deemed to be a subsidiary company of another company in the following 3 cases :

• Company controlling composition of board of directors: Where a company controls the composition of board of directors of another company, the later becomes subsidiary of former.

• Holding of majority shares : Where a company holds more than half the nominal value of equity share capital of another it becomes subsidiary of former.

• Subsidiary of another subsidiary: Where a company is subsidiary of another company which is itself subsidiary of the controlling company , it becomes subsidiary if controlling company.

Government Company

• A government company means any company in which not less than 51% of the paid up capital is held by

• The central government• Any state government• Partly by central and partly by any one of the

state governments

Rules applicable to govt. co.’s

• Appointment of auditor and audit reports: Auditor is appointed on the advice of CAG, The CAG would have the power to direct the manner in which the co’s account shall be audited by the auditor.

• Annual report to be placed in the parliament : A report is to be prepared within 3 months of AGM in which the audit report is placed, the report along with audit report is to be placed in the parliament, in case state govt. co –owns it then it shall be placed before the sate govt legislature as well.

• Provision of Sec 619 apply to certain companies.

This provision is applicable to company in which not less than 51% of the paid up share capital is held by one or more of the following or any combination like central and one or more govt. co., central or one more state govt. etc.

Sec 619 is intended to strengthen the financial discipline.

• Certain provisions of companies act not to apply :

Central govt. by notification in the official gazette direct that any of the provisions of companies act specified in the notification

- Shall not apply to govt. co.- Shall apply to govt. co. with such exception modifications and adaptations as may be specified in the notification.

Foreign CompaniesRules applicable to foreign

companies1. Documents: (Return of alteration,office where

docs are to be delivered)2. Accounts3. Obligation: (Exhibition of name, wheteher

liability is limited)4. Service of docs on foreign company5. Office where docs are to be delivered6. Penalty7. Registration charges8. Requirements as to prospectus