Kinds of Companies

I. UNLIMITED COMPANIES
➢ Main advantage of Company to trade with limited liability
➢ Yet you can set up Company with unlimited liability
➢ Section 12
“Seven or more persons or where the Company to be
formed will be a Private Company any two or more persons
may form an incorporated Company with or without limited
liability”
➢ A Company with no limit on its liability is an unlimited
Company
 very rare
➢ Suitable
 Where heavy liability not likely
 And advantages of separate corporate personality
required
➢ To have
 Articles of Association -> stating number of members
and share capital
 To be registered

➢ Disadvantage
 Members liable like in partnership
 But creditors cannot go directly to members can ask
only to contribute

➢ Advantages
 Need not have share capital
 Reduce or increase its capital
 Purchase its own shares

➢ Unlimited Company may at anytime convert itself as

Limited Company

II. GUARANTEE COMPANIES

➢ Limited liability means
a) Limit liability by shares
b) Or by Guarantee
➢ Section 13(3)
“The Memorandum of a Company limited by Guarantee
shall... state that each member undertakes to contribute to
the assets of the Company in the event of its being wound
 up, for payment of the debts and liabilities of the Company,
such amount as maybe required not exceeding a specified
amount”
➢ Not necessary to have share capital
➢ If it has share capital
a) Subject to restriction applicable to Company with
shares
b) No liberty to purchase own shares
➢ Only members have right to participate in divisible profits of
Company
➢ Division of capital into units is shares

III. FOREIGN COMPANIES

➢ Means a Company incorporated outside India
➢ Section 591
Company though incorporated outside India, has a place of
business in India

➢ Place of business
a) Substantial activity is carried on
b) Business like operations are carried on or a reasonably
long period of time
c) Summons is within jurisdiction

➢ Documents and particulars to be furnished to Registrar

within 30 days
1. Of state of principal
business
2. Registrar at New
Delhi
i. Certified copy of Charter, Statute or Memorandum of
Association or Instrument constituting Company
ii. Full address of registered or principal office of Company
abroad
iii. List of Directors and Secretary and all relevant
particulars regarding them
iv. Details of Company Secretary
v. Name and address of person resident in India to accept
summons on behalf of Company
vi. Particulars of office of Company in India
➢ If branch is opened – only accounts of branch office to be
included
 ➢ Foreign Company also bound by following obligations
i. To exhibit outside every office or place of business the
country of incorporation in English letters and in
regional language
To show liability of members is limited
ii. All correspondence of Company to show the above
 Failure or above not to invalidate the document but
cannot sue

➢ Accounts of Foreign Company

 Same as Indian Company

➢ Prospectus of Foreign Company

 Same as that of Indian Company
 Additional particulars
i. Instrument containing or defining the Constitution
of the Company
ii. Provisions of Law under which Company was
incorporated
iii. Address in India where above Instrument may be
inspected
iv. Date and country of incorporation
v. Address of principle office of business in India if
any

➢ If 51% of share capital in Foreign Company is owned by

Indians, all the provisions applicable to companies in India
to be applicable
➢ Various provisions of Act to apply to Foreign Companies

IV. GOVERNMENT COMPANIES

➢ Section 617
For the purposes of this Act, government companies means
a Company in which not less than 51% of the paid up share
capital is held by Central Government or by any State
Government or Governments or partly by the Central
Government or partly by one ore more State Governments
and includes a Company which is a subsidiary of a
Company as thus defined
➢ Takeover by Central government of Company under
Industries Development and Regulation Act, 1951 does not
mean Company is converted to Government Company
 ➢ Special provisions relating to Government Companies
a. Auditor to be appointed for re-appointed by
Comptroller and Auditor General of India
b. Comptroller and Auditor General of India
 Auditing as per his instructions
 Can conduct supplementary or test audit of
Companies
 To call for report from Auditor
c. Central Government to prepare and submit report
within three months of Annual Meeting and to be
submitted to House of Parliament
 Also applicable to Government Company in
liquidation
➢ Generally Act to apply to Government Companies but
application subject to notification by Central Government in
other matters

V. HOLDING COMPANY AND SUBSIDIARIES (SECTION 4)

➢ When one Company has control over another Company

Holding Company Subsidiary Company

➢ Control is by three ways:
a. Controls composition of Board
 That is can remove or appoint directors to board
 Can remove under the following three cases:
 Can be appointed only by the exercise of
power of Holding Company
 Directors of Subsidiary Company mainly
because he holds position in Holding Company.
 Nominated by Holding Company
b. Holds majority of shares, that is, more than ½ of the
equity share capital of Company
c. Holding Company subsidiary of another Company
Eg. A

D Therefore D is subsidiary of A and A also

➢ Accounts of Holding Company

 Balance sheet of holding Company to contain
documents of Subsidiary Company
 i. Balance sheet of Subsidiary Company
ii. Profit/loss Account Of Subsidiary Company
iii. Copy of report of Board of Directors
iv. Copy of report of Auditors
v. Statement of Holding Companies interest in
Subsidiary Company
vi. Unable to obtain above information – report of
Board of Director’s to that effect
vii. Non coincidence of financial year – report for in
between period

➢ Inspection of Subsidiary’s books of account

 Holding Company by resolution to appoint inspector to
inspect books of account of Subsidiary Company

➢ Investment in Holding Company

 Subsidiary Company not to have shares in Holding
Company
 Not applicable
i. Where subsidiary is Legal Representative of
deceased member of Holding Company
ii. Where subsidiary is Trustee
 During amalgamation Subsidiary to buy shares of
Holding Company

VI. ILLEGAL ASSOCIATIONS

➢ Section 11(2)
 Association of more than 20 members
 10 members in banking business
 Should be Company

➢ Conditions of Illegality
1. Membership is more than 20
10 in case of banking
2. Association formed for purpose of business
3. Object to earn profits for itself and its members
4. Not registered as Company
➢ Not applicable to Hindu Undivided Family (HUF)

➢ Consequences of Illegality
1. Unlimited liability/ Personally liable
 Members punishable with fine which extends upto
Rs. 10,000/-
2. Cannot sue on contract
 3. Cannot be wound up
4. No suit between members for partition or dissolution

VII.PRIVATE COMPANIES
➢ Section 3(1)(iii)
It means a Company which in its Articles of Association
contains following restrictions
i. Minimum paid up capital
 Of Rs. 1 lakh
 Or as prescribed by Articles of Association
ii. Restriction on transferability of shares
 Restriction in such a way that maximum limit of
members of fifty
 Restriction cannot be applicable to Private
Company not being limited by shares
iii. Restriction on membership
 50 members
 Exclusive of employees
 Joint shareholders to be treated as single member
iv. Prohibition on Issue of Prospectus
 Company to prohibit invitation to public to
subscribe to shares or debentures of the Company
 2000(A)
 Should prohibit invitation or acceptance or
deposits from persons other than members,
directors or relatives
 To increase capital to Rs. 1 lakh in two years
 Failure results in striking off from Register of
Companies, that is, as a Default Company
 Compulsory to have Articles of Association

➢ Advantages of a Private Company

 Act to apply to all Private Companies except where
exempted
 Advantages
1. Subscription
 2 members
 Therefore a close knit group – for eg. Family or
friends

2. Exemption from Prospectus – Provisions

 Public participation by issue of Prospectus
prohibited
  Therefore exempt from all restrictions relating
to Prospectus
 No need to file Statement in Lieu of Prospectus
 Allot shares without waiting for minimum
subscription
 Start business on incorporation – need not
wait for obtaining certificate for
commencement of business

3. Directors
 Beneficial exemptions
 Minimum two directors
 Directors can be permanent life Directors
 No retirement on rotation
 Number of Directors cannot be increased
beyond the permissible maximum in Articles of
Association
 Directors of Public Companies can’t act as
Directors of Private Companies unless consent
to Registrar within 30 days of appointment
 Not applicable to Private Company
Directors
 Restriction on remuneration not applicable

4. Statutory Meeting
 Private Company exempted from requirement
of holding statutory meeting and filing
statutory report

5. Further issue of Capital

 Further issue of capitol need not be only to
existing shareholders, can be offered to
outsiders

6. Company an Undisclosed Principal

 Formalities of Undisclosed Principal not
applicable in case of Private Company

7. Disclosure of interest
 Interested Directors can participate and vote