Shaitan Saturday @ Management Paradise HQ

COMPANY LAW NOTES

COMPANY LAW NOTES

COMPANY LAW NOTES

COMPANY LAW NOTES - KINDS OF COMPANIES

Types Of companies

1) Private Company

2) Public Company

3) Private Company limited by shares

4) Private Company limited by guarantee and having share capital

5) Private Company limited by guarantee and having no share capital

6) Public Company limited by shares

7) Public company limited by guarantee and having share capital

8)Public Company limited by guarantee and having no share capital

9) Private Company Unlimited and having share capital

10) Private Company Unlimited and having no share capital.

11) Public Company Unlimited and having share capital.

12) Public Company Unlimited and having no share capital.


Other Kinds of companies:

1) Statutory Companies

2) Registered Companies

3) Association Not for profits (sec 25)

4) Government Companies

5) Foreign Companies

6) Holding and subsidiary companies

7) Investment companies

8) public Financial Institutions.

9) Producer Companies

10) Illegal Companies

11) Unregistered Companies.


Private Company (sec 3(1)(iii))

1) A private company must have minimum paid up share capital of Rs. 1,00,000

2) The articles of association of a private company must contain the following:
a. Restrictions on the transfer of shares
b. Limitation on the maximum no. of members
c. Prohibition on inviting the public to subscribe for shares or debentures
d. Prohibition on accepting deposits from the public.

3) The minimum paid up share capital requirement of rs. 1,00,000 is not applicable to Section 25 companies

4) The term share capital means equity or preference

5) In the case of a private company not having the share capital the Articles of association will not contain any restriction on the transfer of shares.

6) The no. of members of a private company cannot exceed 50 while calculating the no. of members, the following points should be noted.
a. Employee share holder who have been allotted shares weather there are in present employment or past employment should not be counted.
b. Joint shareholders that is two or more persons holding one or more shares jointly should be taken as single member.
c. The number of debenture holders may exceed 50.

7) A private company may accept deposits from members, directors and there relatives of its members or directors.

8) Atleast two persons are required to form a private company

9) If a private company is registered with limited liability its name must end with “Pvt. Ltd”



Public Company (sec 3(1)(iv))

1) Public Company must have a minimum paid up share capital of Rs. 50000

2) The Articles of association of the public company will not contain any restrictions or limitations or prohibitions. Therefore:
a. Shares are freely transferable without any restrictions.
b. There is no maximum limit on the no. of members.
c. Shares and debentures can be allotted to the public and the deposits may be created from the public.

3) The requirement of minimum paid up share capital is not applicable to Sec 25 companies.

4) The share capital may be equity or preference

5) Where a private company is a subsidiary of a public company shall also be deemed to be a public company.

6) Atleast 7 persons are required to form a public company.

7) If a public company is incorporated with the limited liability its name must end with the word “Ltd”

Distinction Between The public Company and the Private Company

Private Company Public Company

1) The minimum no. of members required is two
1) The minimum no. of members required is seven

2) The maximum no. of members cannot exceed 50
2) No limit on the maximum limit on the members.

3) There are restriction on the transferability of share
3) Shares are freely transferable.

4) Private cannot issue prospectus to the public
4) public company may issue the prospectus to the public

5) Statement in lieu of prospectus is not applicable.
5) S.L.P may be filed with R.O.C

6) The minimum no. of directors required is 2
6) The minimum no. of directors required is 3

7) The can commence its business immediately after obtaining the Certificate of incorporation from the R.O.C
7) This Company can commence its business only after obtaining the certificate of commencement of business from the R.O.C.

8)Provisions relating to the statutory meeting and statutory report are not applicable.
8) Statutory meeting must be held and the copy of statutory report must be filed with R.O.C

9) Consent of directors need not be filed with R.O.C.
9) Consent of the directors in writing must be filed with the R.O.C

10) In this company 2 or more directors may be appointed by a single resolution. (enblock)
10) Each director should be appointed with a separate resolution.

11) Directors cannot retire rotationally
11) Directors retire by rotation at an every A.G.M

12) In this company, there can be as many no. of directors as the no. of its members.
12) The No. directors cannot exceed 12

13) The quorum for the general meeting Atleast two persons are personally present
13) The quorum for the general meeting five members are personally present.

14) There is no limit on the account of managerial remuneration.
14) The overall managerial remuneration cannot exceed statutory limit. i.e., 11% of the net profit of the company.

15) This Company cannot allot shares and debentures to public. The minimum paid up share capital is Rs 100000
The name of the company end with the “Pvt. Ltd”. If the Company’s registered with limited liability
15) This Company can allot shares and debentures to public. The minimum paid up share capital is Rs 500000
The name of the company end with the “Ltd”. If the Company’s registered with limited liability

Reasons for granting special privileges to private companies:
In a private company public money is not involved. Private company is viewed by as merely an extension of large partnership. The companies Act 1956 want to encourage partnership firms and other business to convert themselves and register.

Conversion of a private company into a public company (sec 43)

By default By operation of By choice

(sec 43) Law (sec 43A) Sec 44

1) conversion of private company into the public company by default:

a) According to sec 3(1)(iii) the articles of association of every private company must contain certain restrictions, limitations, prohibitions. If a private company makes any default or violate any of these restrictions, limitations and prohibitions that private company will lose all its privileges and exemptions.

b) If the private company applies to central government and proved to the central government. That the default was made inadvertently or accidentally then the government may condone the default and allow the private company to continue and enjoy its privileges and exceptions.


2) Conversion of a private company into a public company by choice:

a) The general meeting must be held and a special resolution must be passed for altering the articles of association. All the restrictions, limitation, prohibitions which are contained in articles must be deleted.

b) A copy of special resolution in form 23 must be filled with R.O.C within 30 days thereof.

c) If the members are less than 7 steps must be taken to increase this no. to Atleast seven

d) If the No. of he director are less than 3 steps must be taken to increase this no. to Atleast 3

e) If the paid up share capital is less than 500000, steps must be taken to increase.

f) The name of the company must be changed by deleting the word “Pvt”

g) If copy of prospectus (or) statement in lieu of prospectus containing the prescribing
particulars in the prescribed form must be filed with R.O.C.

h) The R.O.C will issue a fresh certificate of incorporation to the company.

Conversion of a public company into a private company (sec 31(1)(2A)

1) A general meeting must be held a special resolution must be passed for altering the Articles of association that means restrictions, limitations and prohibitions which are necessary according to sec 3(1)(iii) are included.

2) An application must be made to the central government in the form 1B for necessary approval.

3) A copy of a special resolution in form 23 must be filed with the registrar within 30 days thereof along with altered articles.

4) A copy of order of central government must be filed with R.O.C within one month of receipt.

5) Where the no. members are more than 50 steps must be taken to reduce to 50 or less.

6) The name of the company must be changed by adding the word “Pvt” registrar under the new name of the company.

7) A fresh certificate of incorporation must be obtained from the registrar under the new name of the company.

Statutory Company:
These are company’s which are governed both the company’s act and their respective special act.

E.g.: Reserve Bank of India, LIC, and UTI etc.

Registered Companies:

These are the companies which are registered under the companies act 1956.
Companies Limited By Shares:

1) This is a company in which the liability of the members is limited the memorandum remaining unpaid on the share held by them including the premium payable by them.

2) If the shares are fully paid up there is no liability on the members

3) This liability can be enforced by the company at any time that either during its existence or during its winding up.

Companies Limited by Guarantee:

1) This is a company in which the liability of members to memorandum to a fixed amount that the amount of guarantee given by them. The liability can be enforced by the company only when the company goes into the winding up but not during its existence.

2) This is also known as a pure guarantee company or a guarantee company simplicitor.

3) This company depends on the subscription from its members for its functioning.

Example: Clubs, Library’s, Sec 25 companies etc.

Companies Limited by guarantee and having share capital:

1) This is the company in which the liability of the members is two-fold.

2) The members are liable to pay the amount remaining unpaid the shares held by them either during the company’s existence when it is wound up.

3) The members are liable to contribute the amount of guarantee when the companies goes into the winding up.


Unlimited Liability Companies:

1) This is a company in which the liability of the members is unlimited.

2) This company may or may not have share capital.

3) The articles of association of this company must state the no. of members and the amount of share capital if any.

4) Outsiders cannot sue the members of any unlimited company because company enjoys separate legal entity. Outsider can only sue the company and the company will sue its members for its recovery of debts.

Association Not for Profits (section 25)

1) This is a company which is formed not for making profit but for the purpose of promoting commerce, art, science, religion charity or any other useful social life.

2) Central government may grant license to the company if the following two conditions are satisfied:
a. The company is formed not for profit but for promoting commerce, art etc.
b. The company prohibits the payment of the dividend to its member’s profits made by the company, if any should be used only for promoting the objects for which the company is formed.

3) Sec 25 companies are not required to comply to the required of the minimum paid up share capital.

4) The company is not required to comply the requirements of minimum paid up share capital.

5) A partnership firm may become a member of section 25.

Examples of Sec 25 Company in India are:

Major hospitals like Apollo, Care, sports club like Mohan Began, DDCA, Mumbai, (Gymkhana club), etc.

Government Companies (sec 617)

1) A government company is which not less than 51% of the paid up share capital (equity or preference share capital) is held by central government or one or more state government partly by the central government and partly by one or more state companies.

2) Any subsidiary of a government company shall also treated as a government company.

3) A government is not agreement itself therefore employees of Government Company are not government companies.

4) A government company can sue the government in that own name.

5) A government company may be incorporated either as a private company or as public

company. However the most of the government in India are incorporated as private companies because it was very continent and enjoy privileges and advantages.

6) Government company need not use the name of “Pvt” as the part of the name of the company.

7) The auditor of the government company will be appointed by C&AGI (Comptroller and Audit General of India)


Foreign Companies (sec 591)

1) This is a company which is incorporated outside India under the law of another company but having a place of business in India.

Example: British airways, Cathey pacific

2) Copy’s of memorandum, articles etc. must be filed by every foreign companies act at the following two places:
a. R.O.C at New Delhi
b. R.O.C at the state where the company was principle place of business.

3) The name of the company and the country of its incorporation must be conspicuously written
in English and local news paper in vernacular language in the name board, prospectus, letter etc.
Holding and subsidiary Company (sec 4)
1) The terms holding and subsidiary companies are interrelated
2) A holding company must satisfy one or more of the following three conditions in its subsidiary.
a. The holding company must control the composition of B.O.D in the subsidiary or
b. The holding company must hold more than half of the equity share capital in its subsidiary (preference share holdings must be ignored they do not carry voting rights) or
c. The holding company must hold the more than half of the voting rights
3) Any subsidiary of a subsidiary company will also be the subsidiary company of the holding company

4) Shares may be held by a holding company in its subsidiary either by itself or together with only of its subsidiary

5) A subsidiary cannot purchase even a single share of its holding company after 1-4-1956 after it became its subsidiary.


Public Financial Institution (sec 4A)

1) The following institutions are recognized as the public financial institutions in India
a. Industrial Credit and investment corporation of India (ICICI)
b. Industrial Finance Corporation.
c. Industrial Development bank of India.
d. The Life insurance Corporation of India.
e. The Infrastructure Development Finance Company Ltd.
f. The Unit Trust of India - established under Section 3 of the Unit Trust of India Act, 1963.
g. The Infrastructure Development Finance Company Ltd.
h. The Securitization Company or Reconstruction Company.

2) The central government has the power to specify other institutions as P.F.I ’s. If the institution has been setup under any central Act or not less than 51%of the paid up share capital of the institution is held and controlled by the central government.

3) The institutions specified as the P.F.I’ s by the central government are as follows:
a. General insurance corporation of India and it is the subsidiary of new India assurance, national insurance, oriental fire united India etc.,
b. APSFC, BSFC, Gujarat SFC etc.,
c. NHB, SIDBI, NABARD, EXIM Bank.
d. Industrial Reconstruction Bank of India.
e. Technology Development and Information Company limited.
f. Risk capital and technology and finance corporation ltd.

Producer Companies:

These are companies which are in the nature of multi state cooperative and which are registered as companies under Act.

Investment Companies


These are the companies whose primary business is the acquisition of shares, stock, debentures and other securities of other companies are Body Corporate.

Illegal Companies (sec 11)

1) An association or partnership which consists of more than 10 persons in the case of Banking business and which is and which consists of more than 20 persons in another and which is unregistered either under the companies act 1956 (or) any under act will be called an illegal association.

2) Exemptions:
Sec will not apply to the following entities
a. Associations which are formed without any profit like NGO’s and charitable institutions.
b. Stock Exchanges: These are formed without profit motive.
Case: Ruia vs. dalmia

c. One single Hindu Undivided family carrying on business.
3) When two or more H.U.F’ s come together to do business then sec 11 will apply in that case all adult members both male and female be counted, minor members should be ignored.

Effects of an illegal Association:-

a. Every member of an illegal association shall be personally liable for all debts and liabilities incurred by an association in an unlimited manner.

b. Every member shall be liable to pay fine upto rs.10, 000 each.

c. An illegal association cannot enter into any contract with any persons.

d. It cannot sue either its own member’s or any outsiders. It can be sued either by its own members or outsiders (However outsiders sue the members personally).

e. It cannot be wound up or dissolved because it does not exist in the eyes of law.

f. It cannot become a legal association subsequently by reduction in the no. of members.

g. Profits made by an illegal association liable to Income tax.

Unregistered Company

Any partnership or association consists of more than 7 persons and not more than 10 persons and carrying an banking business or not more than 20 persons carrying another business which is not registered in companies act, or any other business.

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