Types of Companies.pptx

what is a company, company formation procedure

1. According to the definition of a company by the Indian Act 2013; ‘‘A registered association which is an artificial legal person, having an independent legal, entity with perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability .’’ According to the British definition; ‘‘A company is a body corporate or an incorporated  business  organization registered under the companies act. It can be limited or unlimited company, private or a public company, company limited by guarantee or a company having share capital, or a community interest company.’’ According to the  US legal definition ; ‘‘A company can be a corporation, partnership, association, joint-stock company, trust fund, or organized group of persons, whether incorporated or not, and (in official capacity) any receiver, trustee in bankruptcy, or similar official, or liquidating agent, for any of the foregoing.’’

2. Key Features of a Company The key features and characteristics of a company are as follows; Artificial person The law treats the company as a legal artificial person because it has its name and bank accounts. It can also own property under its name, file a lawsuit against other companies or personals, or be partnered up with other companies. It performs all of the activities that a person can legally do; a company can do it well. Therefore, it acts as an artificial individual. Separate Legal Entity When we say legal entity, what it means that it’s completely independent of its people who control its operations. In other words, the company won’t be responsible if its members don’t pay their debt. The same goes for the company as well; that the members don’t have to pay for the debt of the company, if it’s unable to pay to its creditors. Incorporated Association A company starts its business operations when it is registered by the law and under the ordinance of the companies act. The registration process of a company is lengthy; it should have a memorandum of association, board of directors, share prices and shareholders, a name, office, phone number, address, and other legal documentation.

3. Limited Liability The liability of shareholders is limited to their share price only; it is in the limited companies by share. On the other hand, in the case of limited companies by guarantee, where the share of contributors is like an asset in the company; if the company goes bankrupt, then the shareholders have to pay a small amounts to cover up the loss of the company. Common Seal As we know that a company acts as an artificial legal individual, therefore, it has a stamp or seal with the name and address engraved on it. This stamp would be like the signature of the company. The stamp and company’s seal is used for the verification and authorization of various documents. Perpetual Existence Unlike proprietorship, partnership or any other type of business, a company doesn’t depend upon its owners, board of directors, shareholders, or employees. Many people come and go in the company, but it stays. 

4. Kinds of Companies   According to mode of incorporation Statutory Company Registered Company   According to number of members Private Company Public Company One person Company   According to liability of members Company limited by shares Company limited by guarantee Unlimited Company  

5. Statutory Company eg . LIC, RBI, UTI, FCI etc. Incorporated by a Special Act passed by Central or State legislature Such Companies carry on some business of national importance Exempted from having MOA or using 'limited' word in their name. Their audit supervision and guidance by CAG and Annual reports are to be placed before Central or State Legislature Governed by their Special Act but Companies Act is also applicable in so far as its provisions are not inconsistent with the provisions of Special Act

6. Registered Companies These are the companies which are registered under the Companies Act 2013 or earlier Companies Acts. Most of the companies are formed this way If some Insurance, Banking or Electricity Supply companies are incorporated under the Companies Act, then on operational matters they will be governed by their Special Acts and on other matters by the provisions of Companies Act.   On the basis of no. of members, registered Companies can be # private,# public or #one person Company On the basis of liability of members, registered Companies can be# limited by shares, #limited by guarantee or #unlimited companies TPDDL i.e. Tata Power Delhi Distribution Lmt .- it an electricity supply company Bhatti Axa Life Insurance Company Lmt .-it is an insurance company. Both of them are registered companies and therefore end with word limited. But on operational matters they are governed by the Electricity Act, 2003 or the Insurance Act, 1938 respectively

7. Private Company ,Sec2(68) Restricts the right of members to transfer its shares Limits the number of members minimum 2 to maximum 200 Prohibits any invitation to public to subscribe it's securities These companies must add "Private" word with its name. These companies enjoy certain exemptions and privileges

8. Public Company ,Sec.2(71) Shares are freely transferable Minimum membership required is 7 but maximum no limit Can invite public for subscription of its securities Subsidiary of a public company will be deemed to be public company (even when the subsidiary is a private company and has those three restricting clauses in its AOA) These companies are required to comply with lot of formalities and procedures

9. One Person Company, Sec.2(62) Has just one member who shall be a natural person but it is necessary to indicate name of another person (nominee)who shall become the member incase the only member dies or is incapacitated Necessary to mention the words 'One Person Company" in brackets below the company's name wherever printed/engraved/affixed Always incorporated as a private company . It may be limited by shares, or limited by guarantee or an unlimited company

10. Such company enjoys certain additional exemptions like- no. of directors can range from 1 - 15, no need of their rotational retirement, no compulsion to conduct board meetings if there is just 1 director, no need to hold AGM/ EGM, the Financial Statements may not include cash flow statement and may be signed by just 1 director, BOD report is not too detailed, Annual Return can be abridged ; financial statements can be filed with ROC within 180 days of closure of financial year etc. This OPC status and concessions will be withdrawn if it's paid up share capital exceeds 50 lakhs or average annual turnover during preceding three consecutive financial years exceeds 2 crores . In such a case, the OPC is required to convert itself,within next 6 months, into a private or a public Co and take necessary steps such as - alteration of its AoA and MoA for making changes incidental to conversion, give notice to ROC(within a period of 60 days of conversion) informing it of cessation of its OPC status and conversion into private or public company as the case may be.

11. Companies limited by shares In such companies liability of members is limited by the memorandum to the amount remaining unpaid on shares held by them This liability can be enforced at any time during the existence of the company or during the winding up of company Most of the companies in India belong to this category Such companies are also known as limited liability companies If shares are fully paid, the liability of members will be nil

12. Companies Limited by guarantee In such companies, liability of members is limited by memorandum to the amount guaranteed by them (such amount as they have respectively undertaken to contribute to assets of the company to meet the deficiency at the time of its winding up) This liability/ guarantee can be enforced(demanded) only at the time of winding up and not before Non- trading companies formed for the promotion of art, science, commerce, sports, culture etc. are incorporated as guarantee companies. Eg . Chambers of Commerce, sports clubs, trade associations

13. Memorandum of Association of such companies states what amount each member has guaranteed and this amount may differ from member to member Such companies may or may not have share capital. If it has share capital, liability of members will be two fold .i.e. they are liable for amount remaining unpaid on shares as well as amount payable under guarantee

14. Unlimited Companies Such companies have no limit on the liability of its members i.e. their liability may extend to their personal property to pay off the liabilities of the company Memorandum of such companies must state that liability of its members is unlimited Liability of members is enforceable only at the time of winding up Every member is liable to contribute in proportion of his interest in the company Such companies are very rare . Eg . Nova Scotia (Canada) Unlimited Liability Company, Cyber Ventures

15. Government Company eg . Hindustan Machine Tools Ltd., State Trading Corporation of India Lmt . A Govt. Company is one in which not less that 51% paid up share capital is held singly or in combination by the Central Govt and/ or one or more State govts.A subsidiary of a Govt. Co. is regarded as a Govt . Co. It is to be registered under the Companies Act and could be incorporated as a 'public' or a 'private' company. These companies are governed by the Companies Act like any other limited company but may be granted by the Central govt exemptions from application of certain sections of the Companies Act or applications of such provisions with certain modifications/exceptions/adaptations

16. Special provisions as regards audit. CAG of India appoints / reappoints the auditor of such co; CAG can also give directions to such auditors regarding manner of audit; CAG can get supplementary test audit of such Co. being conducted by persons appointed by him; auditor is required to submit copy of his audit report to the CAG ;and the CAG can give his comments on that report which shall also be placed before the annual general meeting (AGM) along with the audit report. Special provisions as regards annual reports. An Annual Report on working and affairs of such company shall be prepared within 3 months of AGM (where audit report stated above was laid) by the Central govt ( if it is member of such govt Co ) or by the member State Govt (if Central govt is not member of such Co).Then the concerned govt (CG and/or SG) shall lay before both its Houses (Parliament or Legislature as the case may be)-the annual report( prepared by the CG/SG as the case may be) + copy of audit report + comments of CAG.

17. Privileges/exemptions of a private co. Only 2 persons may form themselves into a private co. May work with only 2 directors It can allot shares without receiving the minimum subscription It is not required to prepare and file prospectus with the Registrar Directors of a private company are not required to retire by rotation. All its directors can be permanent. It is not required to appoint independent directors, woman directors, small shareholders directors etc.

18. It may by its AOA, provide special disqualifications for appointment of directors . No restriction on payment of remuneration to directors, managing directors etc. Exempted from constituting committees like Audit Committee, Nomination and Remuneration Committee. Exempted from Secretarial Audit Not required to rotate auditor/ audit firm Unless AOA provide for a larger no., quorum for general meeting -2 members personally present

19. Private Company vs Public Company PRIVATE COMPANY PUBLIC COMPANY Minimum no. of members – 2 Maximum no. of members-200 Minimum no. of members -7 Maximum no. of members- No limit There must be restrictions on transfer of shares of the company. No restrictions on transfer of shares. Any invitation to public to subscribe for any securities of the company is prohibited. A public company can invite public for subscription of its securities. It can issue securities only through private placement, or by way of rights or bonus issue It can issue securities to public through prospectus, private placement or by way of rights or bonus issue It can allot shares without receiving the minimum subscription It cannot allot shares without receiving minimum subscription A private company must have atleast 2 directors A public company must have atleast 3 directors Directors are not required to retire by rotation. All its directors can be permanent. Atleast 2/3 directors of a public company shall be rotational directors . It is not required to appoint independent directors. A public company which is listed or otherwise prescribed must appoint independent directors

20. Private Company vs Public Company PRIVATE COMPANY PUBLIC COMPANY It may by its AOA, provide special disqualifications for appointment of directors . It cannot prescribe additional disqualifications in its AOA for appointment of directors. No restriction on payment of remuneration to directors, managing directors etc. Overall maximum managerial remuneration is fixed at 11% of annual net profits of a public company. Exempted from constituting committees like Audit Committee, Nomination and Remuneration Committee. Public companies ( listed/prescribed) are required to constitute Audit Committee, Nomination and Remuneration Committee Exempted from Secretarial Audit Public companies( listed/prescribed) are required to get Secretarial audit by a practicing Company Secretary Not required to rotate auditor/ audit firm Public companies ( listed/prescribed) required to rotate auditor/ audit firm Unless AOA provide for a larger no., quorum for general meeting -2 members personally present Quorum shall be 5 to 30 members personally present depending upon the number of members in the co. Must have word ‘Pvt./Private’ in its name. Name must end with word ‘ Lmt ./Limited’