An Overview of Different Types of Companies in India
- Blog|Company Law|
- 1938 Views
- 25 Min Read
- By Taxmann
- Last Updated on 22 March, 2023
Table of Contents
3. Classification of Companies
5. Characteristics of Private Company
6. Incorporation of a Private Company
7. Privileges and exemptions of Private Companies
9. Characteristics of Public Company
10. Incorporation of Public Company
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|Regulatory Framework Coverage|
|The Companies Act, 2013|
|Section 2(6)||Associate Company|
|Section 2(11)||Body Corporate|
|Section 2(42)||Foreign Company|
|Section 2(45)||Government Company|
|Section 2(46)||Holding Company|
|Section 2(62)||One Person Company|
|Section 2(68)||Private Company|
|Section 2(71)||Public Company|
|Section 2(85)||Small Company|
|Section 3||Formation of Company|
|Section 8||Formation of Company with Charitable Objects|
|Section 10A||Commencement of Business|
|Sections 378A & 378B||Definition & Object of Producer Companies|
|Sections 379 to 393||Companies Incorporated Outside India|
|Section 455||Dormant Company|
|The Companies (Specification of Definitions Details) Rules, 2014|
|Rule 2A||Companies not to be considered as listed companies|
|The Companies (Incorporation) Rules, 2014|
|Rule 3||One Person Company|
|Rule 9||Reservation of Name|
|Rule 9A||Extension of Reservation of Name in certain cases|
|Rule 23A||Declaration at the time of commencement of business|
|Rules 38 & 38A||The Applicant for Incorporation of a Company|
|Nidhi Rules, 2014 – Rule 3 to Rule 23B|
|The Producer Companies Rules, 2021- Rules 2 to 5|
Section 3 of the Companies Act, 2013 read with the Companies (Incorporation) Rules, 2014, states that: A company may be formed for any lawful purpose by–
(a) seven or more persons, where the company to be formed is a public company;
(b) two or more persons, where the company to be formed is a private company; or
(c) one person, where the company to be formed is a One Person Company that is to say, a private limited company,
by subscribing their names or his name to a memorandum and complying with the requirements of the act in respect of registration.
2. Types of Companies
The three basic types of companies which may be registered under the Act are:
(a) Private Companies;
(b) Public Companies; and
(c) One Person Company (to be formed as Private Limited Company).
3. Classification of Companies
3.1 Classification on the basis of Incorporation
Companies may be Incorporated under the following categories:
- Statutory Companies: These are constituted by a Special Act of Parliament or State Legislature. The provisions of the Companies Act, 2013 do not apply to them. Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.
- Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under any previous company law and registered with the Registrar of Companies, fall under this category.
3.2 Classification on the basis of Liability
Under this category there are three types of companies: –
- Unlimited Companies: In this type of company, the liability of members of the company is unlimited, Section 2(92) of the Companies Act, 2013 provides that unlimited company means a company not having any limit on the liability of its members such companies may or may not have share capital. They may be either a public company or a private company. The members are liable to the company and to any other person.
- Companies limited by guarantee: Section 2(21) of the Companies Act, 2013 provides that a company that has the liability of its members limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound-up, is known as a company limited by guarantee. The members of a guarantee company are, in effect, placed in the position of guarantors of the company’s debts up to the agreed amount. The members are liable to the company and to any other person.
- Companies limited by shares: A company that has the liability of its members limited by the liability clause in the memorandum to the amount, if any, unpaid on the shares respectively held by them is termed as a company limited by shares. Section 2(22) of the Companies Act, 2013 provides that “company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
For example, a shareholder who has paid INR 75 on a share of face value Rupees 100 can be called upon to pay the balance of INR 25 only. Companies limited by shares are by far the most common and it may be either public or private.
3.3 Other Forms of Companies
- Section 8 Companies: a person or an association of persons proposed to be registered under this Act as a limited company and proved to the satisfaction of the Central Government that the company –
(i) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
(ii) intends to apply its profits, if any, or other income in promoting its objects; and
(iii) intends to prohibit the payment of any dividend to its members, such person or association of persons may be allowed to be registered as a limited company without addition to its name of the word “limited” or “private limited” by the Central Government by issuing a license and by prescribing specified condition.
The association proposed to be registered under section 8 shall not be proposed to be an unlimited company. However the same may be company limited by guarantee or a company limited by shares.
- Government Companies: As per section 2(45) of the Companies Act, 2013 the “Government Company” means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company;
Explanation.- For the purposes of this clause, the “paid up share capital” shall be construed as “total voting power”, where shares with differential voting rights have been issued.
- Foreign Companies: As per section 2(42) of the Companies Act, 2013 the “foreign company” means any company or body corporate incorporated outside India which:
(i) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(ii) conducts any business activity in India in any other manner.
- Holding and Subsidiary Companies: As per section 2(46) of the Companies Act, 2013, the “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies and the expression “company” includes any body corporate.
As per section 2(87) of the Companies Act, 2013 “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company –
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:
However, such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation. – For the purposes of this clause, –
(i) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(ii) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(iii) the expression “company” includes any body corporate;
(iv) “layer” in relation to a holding company means its subsidiary or subsidiaries.
As per section 2(11) of the Companies Act, 2013, the “body corporate” or “corporation” includes a company incorporated outside India, but does not include –
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf.
- Associate Companies/Joint Venture Company: As per section 2(6) of the Companies Act, 2013 the “associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation. – For the purpose of this clause, –
(i) the expression “significant influence” means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement;
(ii) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
- Investment Companies: the term “investment company” includes a company whose principal business is the acquisition of shares, debentures or other securities and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty per cent of its total assets, or if its income derived from investment business constitutes not less than fifty per cent as a proportion of its gross income.
- Producer Companies: According to Section 378A of the Companies Act, 2013, Producer Company means a body corporate having objects or activities specified in section 378B of the Companies Act, -2013 and registered as Producer Company under the Companies Act, 2013 or under the Companies Act, 1956.
The Companies Amendment Act, 2020 has introduced a separate Chapter (Sections 378A to 378ZU) relating to Producer Companies under the Companies Act, 2013. [Amendment effective from 11th February 2021].
- Nidhi Companies: A nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013 their core business is borrowing and lending money between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. These companies are regulated under the Nidhi Rules, 2014 issued by the Ministry of Corporate affairs.
- Dormant Companies covered under section 455 of the Companies Act, 2013 and includes a company which is formed and registered under the Act for a future project or to hold an asset or intellectual property and which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
- Non-banking Financial Companies: A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956/2013 engaged in the business of loans and advances, acquisition of shares/ stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/ purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-banking financial company.
- Listed Company: “Listed company” means a company which has any of its securities listed on any recognised stock exchange. However, such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.
For the purposes of the proviso to clause (52) of section 2 of the Companies Act, 2013, the following classes of companies shall not be considered as listed companies, namely:-
(a) Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –
(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
(ii) non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
(iii) both categories of (i) and (ii) above.
(b) Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
- Small Company: The MCA for the Ease of doing Business has revised the definition of Small companies by increasing their threshold limits for paid up capital from “not exceeding ` 50 Lakhs” to “not exceeding ` 2 Crore” and turnover from “not exceeding ` 2 Crore” to “not exceeding ` 20 Crore”.
Thus, the definition of small company under section 2(85) read with Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014 with effect from 1 April 2021 is hereunder:
“Small company” means a company, other than a public company-
(i) paid-up share capital of which does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
4. Private Company
As per Section 2(68) of the Companies Act, 2013, “private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles:
- Restricts the right to transfer its shares;
- Except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that –
(a) persons who are in the employment of the company; and
(b) 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, shall not be included in the number of members; and
- Prohibits any invitation to the public to subscribe for any securities of the company.
The aforesaid definition of private limited company specifies the restrictions, limitations and prohibitions, which must be expressly provided in the articles of association of a private limited company.
1. It must be noted that it is only the number of members that is limited to two hundred. A private company may issue debentures to any number of persons, the only condition being that an invitation to the public to subscribe for debentures is prohibited.
2. The words ‘Private Limited’ must be added at the end of its name by a private limited company.
5. Characteristics of Private Company
- Members – To start a company, minimum number of 2 members is required and a maximum number of 200 members as per the provisions of the Companies Act, 2013.
- Limited Liability – The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are not liable to sell their own assets for payment. Thus, the personal, individual assets of the shareholders are not at risk.
Exception to limited liability: Section 3A provides that if the number of members of a private company is reduced below two, and the business is carried on for more than six months, while the number of members is so reduced, every person who is a member of the company during this period and is cognisant of this fact, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.
- Perpetual succession – The Company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to perpetual succession of the company. The life of the company keeps on existing forever.
- Index of members – An index of the names entered in the respective registers of members and the index shall, in respect of each folio, contain sufficient indication to enable the entries relating to that folio in the register to be readily found. The maintenance of index of members is not necessary in case the number of members of the company is less than fifty which is a privilege to a private company wherein number of members is less than fifty.
- A number of directors – When it comes to directors, a private company needs to have minimum two directors. With the existence of 2 directors, a private company can come into existence and can start with its operations.
- Paid up capital – There is no minimum capital requirement.
- Prospectus – Prospectus is a detailed statement of the company affairs which is issued by a company for its public. However, in the case of private limited company, the act prohibits any invitation to the public to subscribe for any securities of the company. There is no such need to issue a prospectus because in this type of companies, public is not invited to subscribe for the shares of the company .
- Commencement of Business – A company incorporated after the commencement of the Companies (Amendment) Act, 2019 (w.e.f. 02/11/2018) and having a share capital cannot commence any business or exercise any borrowing powers unless –
(a) A declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
(b) The company has filed with the Registrar a verification of its registered office.
- Name – It is mandatory for all the private companies to use the word “private limited” after its name.
6. Incorporation of a Private Company
- The Companies (Incorporation) Amendment Rules, 2020 w.e.f 23rd February, 2020 introduced new web form SPICe+ for incorporation of the Companies replacing the old e-form SPICe.
- SPICe+ is an integrated Web form offering 11 services by 3 Central Government Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and three State Government (Maharashtra, Karnataka & West Bengal), thereby saving as many procedures, time and cost for Starting a Business in India. SPICe+ is part of various initiatives and commitment of Government of India towards Ease of Doing Business (EODB).
- As per Rule 38 of the Companies (Incorporation) Rules, 2014, the Application for incorporation of a company shall be made in SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32) along with e-Memorandum of Association (e-MOA) in Form No. INC-33 and e-Articles of association (e-AOA) in Form No. INC-34.
- The application for incorporation of a company under rule 38A of the Companies (Incorporation) Rules, 2014 shall be accompanied by form AGILE-PRO-S (INC-35) containing an application for registration of the following numbers, namely:-
(a) GSTIN with effect from 31st March, 2019
(b) EPFO with effect from 8th April, 2019
(c) ESIC with effect from 15th April, 2019
(d) Profession Tax Registration with effect from the 23rd February, 2020
(e) Opening of Bank Account with effect from 23rd February, 2020.
(f) Shops and Establishment Registration.
- Services offered through SPICe+ are:
Name Reservation, Incorporation, DIN allotment, Mandatory issue of PAN,
Mandatory issue of TAN, Mandatory issue of EPFO registration, Mandatory issue of ESIC registration, Mandatory issue of Profession Tax Registration (Maharashtra, Karnataka & West Bengal), Mandatory Opening of Bank Account for the Company and Allotment of GSTIN (if so applied for), Shops and Establishment Registration. After deployment of SPICe+ web form, RUN is applicable only for change of name of existing companies.
- In case of incorporation of a company having more than seven subscribers or where any of the subscriber to the MOA/AOA is signing at a place outside India, MOA/AOA shall be filed with SPICe+ (INC-32) in the respective formats as specified in Table A to J in Schedule I without filing form INC-33 and INC-34.
6.1 Steps For Incorporation
STEP – I: Apply for Name Approval:
A. Login on MCA Website
Applicant have to login into their account on MCA Website. (Pro-existing users can use earlier account or new users have to create a new account.)
B. After Login use have to click on the icon SPICe+ in MCA Service. An online form shall be open. Applicants have to fill the information online. (This form cannot be downloaded). Details required to be mentioned in online form:
New fields introduced in Part A of SPICe+ are:
(i) Type of company
(ii) Class of company
(iii) Category of company
(iv) Sub-Category of company
(v) Main division of industrial activity of the company
(vi) Description of the main division
(vii) Summary of the objects to be pursued by the company on its incorporation
(viii) Particulars of the proposed or approved name.
C. Choose File: This option is available to upload the PDF documents. If applicant want to attach any file, can be upload at this option.
D. Submission of Form on MCA Website: After completion of above steps user shall submit the Form with MCA website.
E. Validity of Reserved Name:
The name may be either approved or rejected, as the case may be, by the Registrar, Central Registration Centre after allowing re-submission of such web form within fifteen days for rectification of the defects, if any. Reserved name shall be valid for 20 days from the date of approval.
STEP – II: Preparation of Documents for Incorporation of Company:
The following documents are required to be enclosed: For SPICe+:
(a) Memorandum of Association;
(b) Articles of Association;
(c) Declaration by the first director(s) and subscriber(s)(Affidavit not required);
(d) Proof of office address (Conveyance/Lease deed/Rent Agreement along with rent receipts);
(e) Copy of utility bills not older than two months;
(f) NOC for use premises for registered office of proposed Company from owner and person whose name mentioned in utility bill;
(g) Copy of certificate of incorporation of foreign body corporate (if any);
(h) A resolution passed by promoter company(Applicable if name a body corporate is promoter);
(i) The interest of first director(s)in other entities;
(j) Consent of Nominee (INC–3)(Applicable for one person Company);
(k) Proof of identity as well as the residential address of subscribers;
(l) Proof of identity as well as residential address of the nominee;
(m) Resolution of unregistered companies in case of Chapter XXI (Part I) Companies;
(n) Optional attachments (if any).
STEP – III: Fill the Information in Form:
Once all the above mentioned documents/ information are available. Applicant has to fill the information in the e-form “Spice+ Part -B”.
SPICe+ (INC-32) a Single Window Form for Incorporation of Company: Earlier if a Person wants to incorporate Company then it has to apply for the DIN, Approval of the Name Availability, and separate form for first Director, Registered office address, PAN, TAN etc. But this form is a single window for Incorporation of Company. This form can be used for the following purposes:
- Application of DIN (upto 3 Directors)
- Application for Availability of Name
- No need to file separate form for first Director (DIR-12)
- No need to file separate form for address of registered office (INC-22)
- No need to file separate form for PAN & TAN
- No need to file separately for GST, IEC.
1. Maximum details of 7 subscribers can be filled in SPICe+. In case of more subscribers, physically signed MOA & AOA shall be attached in the Form.
2. Maximum details of THREE (3) directors are allowed to be filled in SPICe+.
3. Maximum 3 (Three) DIN can be applied through SPICe+ form.
STEP – IV: Fill details of PAN & TAN:
It is mandatory to mention the details of PAN & TAN in the Incorporation Form INC-32. Link to find out of Area Code to file PAN & TAN are given in Help Kit of SPICE Form.
STEP – V: Fill details of GST, IEC in AGILE-PRO-S:
If Company wants to apply for GST or IEC it has to select YES in the form and fill the information in the form. If Company doesn’t want to apply for GST and IEC then it have to select no.
If Companies wish to perform Aadhaar authentication for GSTIN registration, they can select Yes or No itself in the Agile Pro- S Form.
STEP – VI: Preparation of MOA & AOA (Electronic or Physical):
After proper filing of SPICe+ form, applicant has to file form INC-33 (e-MOA) and INC-34 (e-AOA) from the MCA site.
STEP – VII: Submission of INC-32, 33, 34, AGILE-PRO-S on MCA:
Once all the 4 forms ready with the applicant, upload all four document as Linked form on MCA website and make the payment of the same.
Following is the sequence of uploading linked forms to SPICE +:
(a) e-MOA [if applicable]
(b) e-AOA [if applicable]
(c) URC-1[if applicable]
(d) AGILE-PRO-S [mandatory in all the cases]
Companies getting incorporated through SPICe+ with an Authorized Capital up to INR 15,00,000 would continue to enjoy ‘Zero Filing Fee’ concession. Such companies will be levied with only stamp duty fees as may be applicable on state to state basis.
STEP – VIII: Certificate of Incorporation:
The Certificate of Incorporation of company shall be issued by the Registrar in Form No. INC-11 along with CIN, PAN & TAN.
Precautions required/points to checked before uploading/submitting SPICe+ form:
(1) The version of the PDF should be latest/new one;
(2) Form is digitally signed by the director as well as the Professional;
(3) Digital signatures are validated;
(4) That the directors are not disqualified under any provision of the Companies Act, 2013;
(5) Size of the documents attached are within the prescribed limit;
(6) Documents attached are legible; and
(7) Signature are not copy pasted in any of the document attached.
Rule 9A of the Companies (Incorporation) Rules, 2014-Extension of Reservation of name in certain cases
Upon payment of fees provided below through the web service available at www.mca.gov.in, the Registrar shall extend the period of a name reserved under rule 9 by using web service SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32), upto:
(a) forty days from the date of approval under rule 9, on payment of fees of rupees of one thousand rupees made before the expiry of twenty days from the date of approval under rule 9;
(b) sixty days from the date of approval under rule 9 on payment of fees of rupees two thousand made before the expiry of forty days referred to in clause (a) above;
(c) sixty days from the date of approval under rule 9 on payment of fees of rupees three thousand made before the expiry of twenty days from the date of approval under rule 9:
However, the Registrar shall have the power to cancel the reserved name in accordance with sub-section (5) of section 4 of the Companies Act. 2013.
New ‘Extend’ functionality has been introduced as part of SPICe+ Part A in line with Rule 9A ‘Extension of reservation of name in certain cases’ of the Companies (Incorporation) Third Amendment Rules, 2020 with effect from January 26, 2021.
6.2 Commencement of Business
As per Section 10A read with Rule 23A of the Companies (Incorporation) Rules, 2014, every company incorporated after the commencement of the Companies (Amendment) Act, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless:
(a) a declaration in form INC-20A is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified by a Company Secretary or a Chartered Accountant or a Cost Accountant. in practice, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration;
(b) The company has filed with the Registrar a verification of its registered office in form INC-22 as provided in sub-section (2) of section 12 of the Companies Act, 2013;
(c) If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees; and
(d) Where no declaration has been filed with the Registrar under clause (a) of sub-section(1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.
6.3 Precaution to be taken by Professionals for Incorporating Companies
- Obtain engagement letter from subscriber.
- Verification of original records pertaining to registered office.
- Ensure all attachments are clear enough to read.
- Ensure the registered office of the company is functioning for the business purposes of the company.
- Take a declaration to the effect that all the original documents have been handed over after incorporation. Since as per section 7(4) copies all documents/information as originally filed should be preserved at the registered office of the company, therefore a professional should take a declaration while handing over the incorporation documents.
- MCA Circular 10/2014: – According to this circular ROC/RD in case of omission of material fact or submission of false/incomplete/ misleading information can after giving opportunity to explain refer the matter to e-governance division of MCA, which in turn may initiate proceedings under section 447 and/or ask the respective professional institute to take requisite disciplinary action.
7. Privileges and exemptions of Private Companies
- The financial statement, with respect to One Person Company, small company, dormant company and private company (if such private company is a start-up) may not include the cash flow statement.
- A holding, subsidiary or an associate company of such company, a subsidiary of a holding company to which it is also a subsidiary (i.e. fellow subsidiary) or an investing company or the venturer of the company will not be considered as related party for the purpose of section 188.
- Provisions of Sections 43 & 47 shall not apply where memorandum or articles of association of the private company so provides.
- A Private Company is not required to comply with the provision with respect to minimum time period to open an right offer, if ninety per cent of the members of a private company have given their consent in writing or in electronic mode.
- A private company can offer shares to employees under a scheme of employees’ stock option by passing ordinary resolution instead of special resolution.
- A private company which are small company shall prepare an annual return containing the particulars as they stood on the close of the financial year regarding “aggregate amount of remuneration drawn by directors” instead of “remuneration of directors and Key Managerial Personnel”.
- In relation to One Person Company, small company and private company (if such private company is a start-up), the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
- Board Resolutions passed u/s 179(3) are not required to be filed with the Registrar in Form MGT-14.
- An auditor or audit firm can audit one person company, dormant company, small company and private company having paid- up share capital upto one hundred crore without counting them in the limit of twenty companies.
- A One Person Company, small company, dormant company and a private company (if such private company is a start-up) shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. However, nothing contained in this sub-section and in section 174 shall apply to One Person Company in which there is only one director on its Board of Directors.
- Shall apply to a private company with the exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.
8. Public Company
- By virtue of Section 2(71), a public company means a company which:
(a) is not a private company; and
(b) has a minimum paid-up share capital, as may be prescribed. Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
- As per section 3(1)(a), a public company may be formed for any lawful purpose by seven or more persons, by subscribing their names or his name to a memorandum and complying with the requirements of this act in respect of registration.A public company may be said to be a
- n association consisting of not less than 7 members, which is registered under the Act. In principle, any member of the public who is willing to pay the price may acquire shares in or debentures of it. The securities of a public company may be quoted on a Stock Exchange. The number of members is not limited to two hundred.
- As per section 58(2), the securities or other interest of any member in a public company shall be freely transferable. However, any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.
- The provision contained in the law for the free transferability of shares in a public company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder should have the freedom to transfer. The incorporation of a company in the public, as distinguished from the private, realm leads to specific consequences and the imposition of obligations envisaged in law. Those who promote and manage public companies assume those obligations. Corresponding to those obligations there are some rights which the law recognizes as inherent in the members of the public who subscribe to shares of the company.
Note: The concept of free transferability of shares in public and private companies is very succinctly discussed in the case of Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Ltd.  154 Com Cases 593 (Bom). It was held that the Companies Act, makes a clear distinction in regard to the transferability of shares relating to private and public companies.
9. Characteristics of Public Company
- Board of Directors: The Board of the Public company comprises of a minimum number of three directors and a maximum of 15. The company may appoint more than 15 directors after passing a special resolution. They act as the representatives of the shareholders in the management of the company. Public limited companies are headed by a board of directors and Key Managerial Personnel of the Company. Composition of the board of directors is set out in the company’s articles of association and the applicable rules and regulation.
- Limited Liability: Shareholder liability for the losses of the company is limited to their share contribution. This is what makes it separate legal entity from its shareholders. The business can be sued on its own and not involve its shareholders. The company does not belong to any person since one person can own only a part of it.
Exception to limited liability : Section 3A provides that if the number of members of a public company is reduced below seven and the business is carried on for more than six months, while the number of members is so reduced, every person who is a member of the company during this period and is cognisant of this fact, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.
- Number of Members: A public limited company has a minimum number of seven shareholders or members and no maximum limit of members. It can have as many shareholders as its share capital can accommodate.
- Transferable shares: Shares of a public limited company are bought and sold by the shareholders. However, in case of listed company the shares are traded on a stock exchange where the shares of the company are listed. They are freely transferable between its members and people trading in the stock exchange.
- Life Span: A public limited company is not affected by death of one of its shareholders, but the shares are transferred to the next kin or legal heir of such deceased shareholder and the company continues to run its business as usual. In the case of a director’s death, the Board is empowered to fill the resulting casual vacancy that may be filled by Board of Directors at Board meeting which shall be subsequently approved by members in the immediate next general meeting.
- Financial Privacy: Public limited companies are strictly regulated and are required by law to publish their complete financial statements annually. This ensures that they reveal their true financial position to their owners and to potential investors so that they can determine the true worth of its shares.
- Capital: Public limited companies enjoy an increased ability to raise capital since they can issue shares to the public through the stock market. Debentures and bonds are in the form of secured or unsecured debts issued to a company on the strength of its integrity and financial performance by the general public or its members etc.
10. Incorporation of Public Company
- Requirement of minimum number of directors and shareholders: There is a minimum requirement of directors and shareholders: Public Company: Minimum Shareholders: 7 (Seven); Minimum Directors: 3 (Three).
- Satutory compliances: A public or private will have to comply with all the laws, rules and regulations as applicable, including but not limited to the Companies Act, 2013, Foreign Exchange Management Act, 1999, Shops and Establishment Act, Income-tax Act, etc., failing to which may result in heavy penalties.
- Important Points To Be Remembered:
- There must be at least seven members to start a public company.
- There is no ceiling on the maximum number of members in a public company.
- A public company should have at least three directors.
- The shareholders of a public company can freely transfer their shares.
- A public company can invite the general public for subscribing shares of the company.
- The shares of a public company can be listed on a recognized stock exchange and traded publicly.
10.1 Steps For Incorporation of Public Company
The Incorporation procedure for a public company is similar to the private company. However, it needs to be ensured that the proposed company is in compliance with the minimum requirement of the members and Directors in a public company and the Articles and Memorandum of Association are drafted as per the requirement of the Act. The name shall be suffix by the word “Limited”. If the article of the company is entrenched then such entrenchment shall be in compliance with the Act.
11. One Person Company
11.1 Background of OPC
The Companies Act, 2013 provides for a new type of entity in the form of One Person Company (OPC), the introduction of OPC in the legal system is a move that would encourage corporatization of micro-businesses and entrepreneurships.
11.2 Status of OPC in other countries
- Even in other countries like UK, Australia, Singapore, Pakistan, etc.; a single person can form a company.
- Various countries permit this kind of a corporate entity (China introduced it in October 2005) in which the promoting individual is both the director and the shareholder.
- The amended company law of Pakistan permits one person to form a single-member company by filing with the registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director.
- In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC).
- In China, one person is allowed to apply for opening a limited company with a minimum capital of 1, 00,000 Yuan. The amended law of China prescribes that the owner should pay the investment capital at one time and bars him from opening a second company of the same kind.
- In most countries, the law governing companies enables a single-member company to have more than one director and grants exemption to such companies from holding AGMs, though records and documents are to be maintained.
11.3 Important Provisions relating to Incorporation of OPC
- The single application for Incorporation of Company
- Consent of such nominee (Form INC-3) and requisite fee shall be filed with the Registrar at the time of incorporation of the company along with its memorandum and articles.
- Form INC-32 is form for incorporation of OPC.
- The subscriber to the memorandum of OPC shall nominate a person after obtaining prior written consent of such person who shall in the event of the subscriber’s death/ his incapacity to contract become the member of that OPC.
- A natural person can be member of only one “One Person Company” and he/she shall not be a nominee of more than a OPC.
- Only a natural person who is an Indian citizen and resident in India shall be eligible:
- To incorporate a OPC and
- Act as nominee for the sole member of OPC as per Rule 3 of the Companies (Incorporation) Rules, 2014.
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