2. classes of companies

8/10/2019 2. Classes of Companies

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. CLASSES OF COMPANIES

No. Question ABC Page

1. Classification of companies.

2. Conversion of a private company into public company.

3. Procedure for conversion of a Private Co. into a public company?

4. Procedure for conversion of a Public Co. into a private company?

Q.No.1. Classification of companies.

Chartered Companies: These are the companies incorporated under a special charter (i.e. Licence)

granted by the king or queen of ngland. They are no longer in e!istence in "ndia after independence.

E.g.: ast "ndia Company# $ank of ngland.

tatutor! Companies: These are the companies %hich are created by a special act of theparliament&state 'ssembly. These are mostly concerned %ith public utilities. .g. L"C Life "nsuranceCorporation 'ct# *T" *nit Trust of "ndia 'ct# +$" +tate $ank of "ndia 'ct# ,$" ,eserve $ank of "ndia 'ct# "C'" Chartered accountants regulation act# - / etc.

Bod! Corporate: $ody corporate means an association of persons %hich has been incorporated under some statute having perpetual succession# a common seal and having a legal entity different from the

members constituting it. +ec.0(1) defines it 2 3$ody corporate4 or 3corporation4 includes a companyincorporated outside "ndia but does not include (a) ' corporation sole5 (b) a co operative society

IPCC _25e_C.Law & Other Laws_Classes of Companies ______________________ 2.1

No.1 for CA/CWA & MEC/CEC ASTER

INDS

Basis of

incorporationPrivateCompany

PublicCompany

$asis of

incorporation

$asis of

6%nership

$asis of

7embers

$asis of

Control

6ther

types

8oreign Co."nvestment co.8inance Co.

'ssoc. not for profit

9ovt. co.

:on 9ovt.Co.

;oldingCompany

+ubsidiaryCompany

Private Co.

Public Co.

Chartered co.+tatutory co.

,egistered Co.$ody corporate.

$asis of liability

Companies limited$y +hares

PrivateCo.

PublicCo.

*nlimitedCompanies

PrivateCo.

PublicCo.

Companies limited$y 9uarantee

PrivateCo.

PublicCo.


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registered under any la% relating to co operative societies5 (c) any other body corporate not being acompany %hich the Central 9overnment may by notification in the 6fficial 9a)

Companies #imited $! %uarantee:

1. ' company %here the liability of members is limited to a fi!ed amount %hich the membersundertake to contribute to the assets of the company in the event of its being %ound up.

2. +uch company may or may not have share capital.

3. The amount guaranteed by each member# ho%ever# is in the nature of ,eserve Capital. "t may becalled by the company for paying the liabilities at the time of liquidation.

4. The 'rticles should state the number of members %ith %hich the company is to be registered.,ights of shareholders are different from that of company Ltd by shares. Company can refuseshare transfer.

&. The liability of shareholders is limited to

a. 9uarantee co. %ithout share capital To the e!tent of guarantee.

$. 9uarantee co. %ith share cap. To the e!tent of gu arantee @ *n paid value on shares.

'. This type of company is floated %here funds can be raised from other sources like endo%ments#fees# donations# etc.

(nlimited Companies:

1. The liability of each member e!tends to the %hole amount of the companyAs liabilities membersshall continue to be liable till each paisa of liability has been paid off.

2. "t may or may not have share capital.

3. "f it has a share capital the articles must state the amount of share capital %ith %hich the companyis to be registered and the number of members %ith %hich Co. is to be registered.

4. *nlimited liability of members is to%ards creditors only# not to%ards company.&. "t can convert into a limited liability Co. by passing a special resolution (+.,.) stating that

a. The manner in %hich liability of members is to be limited and

$. Providing for appropriate alteration in 76' and '6'.

c. "t does not affect any debts# obligations etc. of the company e!isting before registration.

Pri)ate Compan!: 's per +ec.B(-)(iii) of the 'ct# a private company means a company %hich has aminimum paid up capital of ,s.- lakh and %hich by its 'rticles

1. "estricts the right to transfer its shares: "t may be done in the follo%ing manner

a. Persons to *hom: $y authorising the directors to refuse transfer of shares to persons %homthey do not approve.


Ph: 0863 22 42 355 www.gntma t!rm"n# .$om


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b. Preference: $y compelling the members to offer his shares to e!isting shareholders first.

c. Communication in *riting: $efore selling or transferring his shares# the directors must becommunicated in %riting of such intention of the shareholder.

d. Calculation of the price: $y specifying the method for calculating the price at %hich the

shares may be sold by one member to another member.e. Emplo!ees lea)ing the compan!: +hareholderAs %ho are also employees of the Co. shall

offer the shares to specified persons %hen they leave the companyAs service.

"t is to be noted that it can only restrict the right of transfer of shares# but canAt prohibit.

2. #imits the num$er of its mem$ers to &+ not including:a. mployee @ 7ember (Present and Past employees).$. oint shareholders are to be treated as a single member.

,ssues:a. The e!emption can4t be claimed if one is first enrolled as member and then became an

employee.

$. Directors or 7D are not considered to be employees# they %ill be counted as members.

c. The limit of >E is only for shareholders. "t may have any number of debenture holders.

3. Prohibits from making an invitation to the public to subscribe for any shares or de$entures inthe company. ("n practical terms# it shall mean that a private company must not make public issuethrough issue of prospectus or publish any advertisement inviting issue of shares or debentures)

4. Prohibits from making an invitation for acceptance of deposits from persons other than itsmembers# directors or their relatives.

Pu$lic Compan!: ' public company is a company %hich

a. "s not a private company F

$. ;as a minimum paid up capital of ,s.> lakhs.c. 8urther a subsidiary of a public company %ill be a 3Public Company4 even if it is

incorporated as a private company. (Deemed Public Company)

%o)ernment Compan! - ec.'1/0:

1. ' company in %hich not less than >-G of the paid up share capital is held bya. The Central 9overnment 6r

$. 'ny +tate 9overnment or 9overnments 6r

c. Partly by the Central 9overnment and partly by one or more +tate9overnments.

2. The subsidiary of a 9overnment company is also a 9overnment company.

Note: The popular name is public sector companies. 8urther every government company may bea public company but every public company need not be a government company.

Note: Public company F Public +ector Company does not mean the same.


No.1 for CA/CWA & MEC/CEC ASTER

INDS


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olding u$sidiar! Co. s: 'ccording to section / of the companies 'ct# a company ('ssume+ Ltd.) shall be deemed to be a subsidiary of another company ('ssume ; Ltd.)# if and only if1. Control on B 5: That the ; Ltd. controls the composition of $oard of directors of + Ltd. 6r

2. Control $! o*nership:

a.Hhere + Ltd. is an e!isting company in %hich the preference shareholders have votingrights# ; Ltd. controls more than half of the total voting po%er of + Ltd. ( @ P).

b. Hhere + Ltd. is a ne%ly formed company# ; Ltd. holds more than half of the nominal valueof + Ltd. paid up equity share capital (6nly quity capital) 6r

3. Chain relation: "f + Ltd. is a subsidiary of ' Ltd. %hich is subsidiary of ; Ltd.# then thecompany + Ltd. is a subsidiary of ; Ltd.

6eanings:

1. Control on composition of Board of directors: $6D of a company shall be deemed

to be controlled by ; Ltd. if any of the follo%ing conditions are satisfieda. "f a person cannot be appointed as a director in + Ltd.# %ithout the e!ercise of po%er

of appointment by ; Ltd. in his favour or

$. "f a person4s appointment as a director in + Ltd. follo%s necessarily from hisappointment as a director in ; Ltd. or

c. "f a person is nominated as director by ; Ltd. or by a subsidiary thereof.

2. An e7isting compan! means a Co. registered under any of the previous CompanyLa%s.

3. Control $! o*nership: +hares hel d by any person as a nominee or by subsidiarycompany shall be treated as being held by the said company. 8or e!ample# in case 3+4 and 3'4# thesubsidiaries of company 3;4# hold together more than half of the equity share capital of company3$4# then 3$4 shall be deemed to be a subsidiary of 3;4 although it has not made any directinvestment in 3$4.

8oreign Companies: ' Company incorporated outside "ndia and having a place of business in "ndia.The nationality of the shareholders %ill not decide the nationality of the foreign company.

"f a foreign public company o%ns entire share capital of a private company in "ndia# then this PrivateCompany %ill not be deemed as a public company for the purpose of this 'ct. "f a part of share capitalis held by "ndians also# it %ill be deemed as public company.

,n)estment Co.: ' Co. %hose principal business is the acquisition of shares# debentures etc.

8inance Compan!: "t means a non banking company# %hich is a financial Company.

Pu$lic 8inancial ,nstitutions: The follo%ing financial institutions shall be regarded# for the purposeof the 'ct# as public financial institutions# namely

1. The "ndustrial Credit F "nvestment Corporation of "ndia Limited ("C"C")

2. The "ndustrial 8inance Corporation of "ndia (:o% "8C" Ltd.)

3. The "ndustrial Development $ank of "ndia ("D$")




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4. The *nit Trust of "ndia (*T")

&. The Life "nsurance Corporation of "ndia (L"C)

'. The "nfrastructure Development 8inance Company Limited.The act empo%ers the Central 9overnment to specify other institution# to be a public financial

institution by issuing a notification in the 6fficial 9a


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e. "t is e!empted from ec.1'' 20 i.e. such company may hold it4s '97 on a publicholiday.

f. To call a general meeting -/ days notice is sufficient ('s against 0- days).

g. Boo9s of accounts are required to be preserved for / years only ('s against Kears).

h. "t need not have the minimum paid capital of -&> Lakhs.

Q.No.2. hat are the different situations ; methods ; causes $! *hich a pri)ate compan! can$e con)erted into a pu$lic compan!Co.4s)

$. "t is necessary for a company to hold more than half of the nominal value of the equity sharecapital of another company to be called its holding company. (;int The relationship can begained even by having control on the board of directors).

c. +tate giving reasons %hether the follo%ing statements are true or false very holdingcompany necessarily holds at least >EG of the equity of its subsidiary. (;int The relationship canbe gained even by having control on the board of directors).

d. !plain the consequence and remedy# if a private company has contravened the provisions of +ec.B(-)(iii) of the companies act# - > . (;int Hrite the 0 nd point of the > th question)

e. I,ight of transfer of shares in a private limited company is generally restricted in the follo%ingmannerI. Comment (;int +ec B(-)(iii))

f. !plain the provisions# %ith regard to deletion of the %ord IlimitedI from the name of the co. (;int sec 0>)

g. !plain Difference bet%een Public Company and Private Company? (;int :ame# prospectus#transfer of shares# :umber of shares etc.#)

The end



2. classes of companies

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