Introduction to Companies & Kinds of Companies

‘Company’

Meaning A company means an association of persons formed to carry on some business for profit or to promote art, science, education or some charitable purpose. A company may or may not be incorporated. An incorporated company or a ‘corporation’ is a single person distinct from the individuals constituting it. Therefore, unlike a partnership, a company is a corporate body and a legal person having status and personality distinct and separate from that of the members constituting it. A company is capable of rights and duties of its own and endowed with the potential of perpetual succession and has a limited liability.

Definition Section 2(20) of the Companies Act, 2013 provides that “company means a company incorporated under this Act or under any previous company law.” Another definition of company has been given by Chief Justice Marshall of USA, “a corporation is an artificial being invisible, intangible and existing only in the contemplation of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence.”

Characteristics Incorporated Association Separate Legal Entity Limited Liability Separate Property Perpetual Succession Transferability of Shares Common Seal Capacity to Sue and Be Sued

Kinds of Companies

Types of Companies Under Companies Act, 1956 Public company limited by shares Public company limited by Guarantee & having share capital. Public company limited by Guarantee & having no share capital Public Unlimited company having share capital Public Unlimited company having no share capital Private Company limited by shares Private company limited by guarantee & having share capital Private company limited by guarantee & having no share capital Private unlimited company and having share capital Private unlimited company and having no share capital

Types of Companies Under Companies Act, 2013 In addition to the 10 types that could be formed under the 1956 Act as per Col. (3), following 5 new types of Cos. can be formed under 2013 Act: One Person Company (OPC) limited by shares. OPC limited by guarantee & having share capital OPC limited by guarantee & having no share capital. OPC Unlimited Company having share capital. OPC Unlimited Company having no share capital.

Classification of Companies INCORPORATED UNINCORPORATED Chartered Companies Statutory Companies Registered Companies Companies Limited by Shares Unlimited Limited Companies Companies Limited by Guarantee OPC Public Private OPC Public Private OPC Public Private

Incorporated Company An incorporated company or a ‘corporation’ is a single person distinct from the individuals constituting it. It is a legal person having status and personality distinct and separate from that of the members constituting it. A company comes into existence on incorporation or registration under the Companies Act. A joint stock company may be incorporated under the Act either as a private or a public company.

Unincorporated Company An unincorporated company, such as a partnership, is a mere collection of aggregation of individuals An unincorporated company is not distinct from the members constituting it.

Chartered Companies The ‘Crown’ in the exercise of the royal prerogative has power to create a corporation by the grant of a charter to persons assenting to be incorporated. They are known as chartered companies. The powers and the nature of such companies are defined by the charter which incorporates it. After the country attained independence, these type of companies do not exist in India. Moreover, the provisions of Companies Act, 2013 do not apply to such companies. Example- Bank of England (1694), East India Company (1600).

Statutory Companies A company may be incorporated by means of special Act of the Parliament or any State Legislature. Such companies are called statutory companies. Such companies are generally formed to carry out some special public undertaking, for example, railway, waterworks, gas, electric generation etc. Statutory companies are governed by the Acts creating them. They are not required to have any memorandum or articles of association. Changes in their structure are only possible by amendments in the Acts creating them. A statutory company though owned by the government has a separate legal entity. It cannot be regarded as a department of the government.

Registered Companies Companies registered under the Companies Act, 2013, or the earlier Companies Acts are called registered companies. Such companies come into existence when they are registered under the Companies Act and a certificate of incorporation is granted to them by the registrar. A company registered under the Act may be A company limited by shares A company limited by guarantee An unlimited company

Private Company Private Company [Sec.(68)]. A private company is a very suitable form for carrying on the business of family and small concerns as the minimum number of members required is only two. [Sec.2(68)] of the Companies Act, 2013 deals with the definition of a private company that provides that every private company should have a minimum paid-up capital of One Lakh Rupees.

Definition of Private Company The definition of private company is quoted u/s 2(68) of the Companies Act, 2013. it 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:- 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 number 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 Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Public Company 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 of five lakh rupees or such higher paid-up capital, as maybe prescribed Is a private company which is a subsidiary of a public company There must be at least seven persons to form a public company Any member of the public may acquire shares in a public company on payment of the share money. Only the shares of a public company are capable of being dealt in on a stock exchange.

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, central government, or by any state government or governments, or partly by the central government and partly by one or more state governments. Shares held by municipal and other local authorities or public corporations are not to be taken into consideration. A subsidiary of a government company is also of a government company.

Foreign Companies [SEC.2(42)] It means a company incorporated outside India and having a place of business in India. According to section 2(42) of Companies Act 2013, a foreign company is one incorporated outside India (a) which establishes a place of business within India after the commencement of this Act., or (b) which had a place of business within India before the commencement of this Act and continues to have the same at the commencement of this Act. The Companies (Amendment) Act, 1974, provides that where not less than 50% of the share capital is held by Indian citizens and/or companies Incorporated in India it shall have to comply with such of the provisions of the Act as may be prescribed as if it were a company incorporated in India. A company having all foreign shareholders may be incorporated in India and in that case the company will be an Indian company.

One Person Company Section 2(62) of the Companies Act, 2013 defines that “One Person Company” means a company which has only one person as a member. One person company is required to identify in its name in bracket as “One Person Company” after its name. One Person Company formed under section 3 may be either- A company limited by shares ; or A company limited by guarantee ; or An unlimited company.

Illegal Associations (SEC. 464) Sec. 464 provides that no company, 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.

Associations Not For Profit Section 4 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 license direct that any association be registered as a company with limited liability without using the words ‘limited’ or the words ‘private limited’. The Central Government shall grant a license only if it is satisfied that- The association about to be formed as limited company aims at the promotion of commerce, art, science, religion, charity or any other useful 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.

Public Financial Institutions The Companies Act provides that each of the following institutions shall be deemed to be public financial institutions for the purpose of this Act, namely: The Industrial Credit and Investment Corporation of India Limited ; The Industrial Development Bank of India ; The Life Insurance Corporation of India ; The Unit Trust of India The Infrastructure Development Finance Company Limited, a company formed and registered under this Act.

Group It means a group of two or more individuals, associations, firms or bodies corporate or any combination thereof, which exercises or is in a position to exercise or has the object of exercising control over any body corporate, firm or trust. Two important features of the definition of ‘Group’ may be noted. A group may consist of not only natural persons like individuals and legal persons such as companies and other bodies corporate but it may also include unincorporated bodies such as associations and firms. It must exercise control or be in a position to exercise control or must have for its object the exercise of control over any body corporate or firm or trust. The essential element in the definition is the exercising or being in a position to exercise control. In order to exercise control holding of shares is not always necessary.

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