Classification of Companies Corporate Law Notes

Classification of Companies Corporate Law Notes

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Classification of Companies Corporate Law Notes
Classification of Companies Corporate Law Notes
  1. What is a Company ? State the different types of companies that can be formed under the Indian Companies Act, 2013. 



Discuss the kinds of Companies.



What are different types Of companies that may be registered under Company Act ? State their characteristics.

Ans. Companies may be classified into various kinds on the following basis :

(I) On the basis of Incorporation
(Il) On the basis of Liability
(Ill) On the basis of number of members
(IV) On the basis of Ownership
(V) On the basis of Control
(VI) On the basis of Nationality.

(l) On the basis of incorporation : On the basis of incorporation, there are three types of companies :

  1. Chartered Companies : If a company is incorporated under a special charter granted by the King or Queen, it is called a chartered company. The powers and nature of business of a chartered company are defined by the charter which incorporated it. The Companies Act did not apply to them. For example, The East India Company and The Bank of England was incorporated by the grant of a special royal charter. Such companies are found only in England and find no place in India after independence.
  2. Companies formed under Special Statute/ Statutory Companies : A company may be incorporated by means of a special act of the parliament or any state legislature. Such companies are called Statutory Companies. The Reserve Bank Of India, State Bank of India, Unit Trust of India and Life Insurance Corporation of India are examples of Statutory companies. Statutory companies are governed by the provisions of the Special Act creating it, however, the provisions of the companies act which are not inconsistent with the special ac apply to those companies. These companies are usually formed to carry out some special public undertakings requiring extraordinary powers and privileges. The Object of such companies is not so much to earn profit but to Serve people.
  3. Registered Companies : Companies registered under the Indian companies Act, 2013 or under any of the previous Companies Acts are called registered companies. A registered company comes into existence hen it is registered under the Companies Act and certificate of incorporation is issued by the Registrar of Companies. Such companies derive their powers from the Companies Act and from the Memorandum of Association. These are the companies commonly found in India.

(II) On the basis of Liability : On the basis of liability, companies are classified under the following three heads :

1. Limited by Shares : Section 2 (22) defines a company limited by shares means a company having the liability of its members limited by the memorandum of association to the amount, if any, unpaid on the shares held by them. The liability can be enforced during the existence of the company as well as during the winding up. Where the shares are fully paid up, no further liability rests on them. This is the most common type of company found in India.

2. Companies limited by Guarantee : Section 2 (21) defines a company limited by guarantee means a company the liability of whose members is limited -to such amount as the members have undertaken to contribute to the assets of the company in the event of its being wound up. A company limited by guarantee may be with or without share capital. If it has a share capital, liability of members shall be two-fold, firstly liable to pay the amount which remains unpaid on their shares and secondly the amount payable under the guarantee.

Such companies are generally non-trading companies, and they are not formed for the purpose of earning profits, rather they are formed for the promotion of art, science, sports, culture, etc.

3. Unlimited Companies : Section 2 (92) : An unlimited company means a company not having any limit on the liability of its members. In an unlimited company, the liability of its members is similar to that of partners. But the creditors cannot directly sue against the individual members. Creditors have to file a petition for winding up Of the company and the company liquidator shall-call-upon the members to contribute to the company the amount necessary to discharge the debts and liabilities of the company and to meet the expenses of its winding up.  The articles shall state the number of members with which the company is to be registered and if the company has, a share capital, the of share capital with which the company is to be registered. Such companies are rarely formed/found.

(III) On the basis of number of Members : On the basis of number of members, there are two types of companies :

1. Private Company : Private Company as defined by Section 2 (68) means a company having a minimum paid up share capital as may be prescribed and which by its Articles of Association .

(a) Restricts the right to transfer its shares, 11 any;

(b) Except in case of one Person Company, limits the number of i members to 200 not including

(i) Persons who are in the employment of the company; and

(ii) Persons who having been formerly in the employment of the company, were members of the company while in that employment an have continued to be members after the employment ceased;

(c) Prohibits any invitation to the public to subscribe for any shares or debentures of the company.  (d) Prohibits any invitation or acceptance of deposits from person other than its members, directors or their relatives,

2. Public Company : According to Section 2 (71) of the Companies Act, 2013, ‘Public Company’ means a company which is not a private company. It can invite the public to subscribe its shares and does not have any restriction on the transfer of shares. The minimum number of persons required to form a company is seven and there is no maximum limit Subsidiary of a public company whether conStituted as a private company or public company shall be regarded as public company.

(IV) On the basis of Ownership : On the basis of ownership, companies may be classified into two types which are as follows .

1. Government Company [Section 2 (45)] : A government company 76 of the paid-up share capital means any company which has a east held either 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. A Government Company also includes a company which is a subsidiary company of a Government Company. Such companies are formed to enable the Government to undertake business ventures and to combine the operating flexibility of privately-organised companies with the advantage of State regulation and-control in the public interest.

2. Non-Government Company ; Companies which are not Government Companies i.e., which are not owned and controlled by the Central or and State Governments are called Non-Government Companies, In other words, a company in which 51% or more of the paid up capital is hold by one or more private public or a group of persons other than government is said to be a non-government company.

(V) On the Basis of Control : On the basis of control, companies can be of two types :

I. Holding Company : According to Section 2 (46), “A holding company in relation to one or more companies means a company of which such companies are subsidiary companies.’ In simple words, where a company has direct or indirect control over another company or other companies, the controlling company is known as the holding company. 2. Subsidiary Company : The companies Act states that a subsidiary company means a company in which the holding company has control in any of the following ways :


(i) Control the composition of the Board of directors.
(ii) exercises control on more than one-half of its total share capital either at its own or together with one or more of its subsidiary companies.

It should be noted that a company shall be deemed to be a subsidiary company of a holding company even if the control is exercised by the company of a holding company even 1 t e con ro IS exercised by the  another subsidiary of the holding company.  [Section 2 (87)1]

(VI) On the Basic of Nationality : On the basic of nationality, companies can be classified as :

1. Indian Company : A company incorporated in India and having a lace of business in India is an Indian company.

2. Foreign Company [Section 2 (42)1] : Foreign company means any company or body corporate incorporated outside India which : (a) has a place of busines in India by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any othe manner.

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