Classification and Formation

8/3/2019 Classification and Formation

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Classification and formation ofcompany act


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Meaning and nature of a

company

In simple language company implies an

association of persons for some common

object.

The law relating to companies in India iscontained in the companies act,1956,as

amended up to date.

This act runs into 658 sections and 15schedules.


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Classification of companies

Companies can be classified on various

basis.

1.On the basis of mode of in corporation

(i)Chartered companies: like east India

company. Generally not found in India.

(ii)Statutory companies: which are created

by a special. E.G. Life insurancecorporation, state bank of India, unit trust

of india and reserve bank of India.


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(iii) registered companies: are companiesregistered under the act.

2.On the basis of liability of members-

(iv) Limited by share: where the liability ofthe members of a company is limited tothe amount unpaid on the shares.

(v) Limited by guarantee: where the liabilityof the members of a company is limitedto a fixed amount which the membersundertake to contribute to the assets of


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the company in the event of its being woundup.

vi) Unlimited: every member is liable for

the debts of the company, as in anordinary partnership, in proportion to hisinterest in the company.


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3.On the basis of number of members.

vii) Private: where the minimum number of

members is two and maximum fifty.

viii) Public: where the minimum number of

member is seven and maximum num is

limited by a number of shares.


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4. Other types of companies:

(i)Government companies : Any company

in which not less then 51% of the paid up

share capital is held by the centralgovernment and partly by one or more

state government.

(ii)Foreign company: Means a companyincorporated outside India but having a

place of business in India.


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(iii)Holding and subsidiary company: a company is

a holding company of another, if the other is

subsidiary.

A company shall be deemed to be a subsidiary

of another if: That other company controls the composition

of its board of directors, or

The other company holds more than half in

nominal value of its equity share capital. or

It is a subsidiary of a third company which

itself is a subsidiary of the controlling

company.


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(iv)Producer companies: any 10 or more

individual producers or any 2 or more

producer institution may form and

incorporate a company as a producercompany.


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Formation of a company

The complete process of formation of a

company may be divided into four stages

namely;

1.Promotion

2.Registration

3.Floatation

4.Commencement of business.


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1.Promotion:

Promotion means the preliminary steps taken

for the purpose of registration and floatation of

the company. Gerstenberg has defined the term promotion as

the discovery of business opportunities and

the subsequent organization of fund, property

and managerial ability into a business concernfor the purpose of making profits therefore.


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2.Registration/ incorporation of company

The promoter of the company will submit

the following documents with the

registrar of companies for theregistration of company.

The memorandum of association

The articles of association

A list of persons who have consented to

act as directors of the proposed

company.


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A statutory declaration of compliance.

Any agreement with the relevant persons of

the proposed company.

The registrar of companies allot a corporateidentity number (CIN) to each company

registered on or after november1,2000.

After scrutiny of all these documents and ifthey are in order, the registrar of companies

shall issue a certificate of incorporation.


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3.Flotation/ Raising of capital

A private company prohibited from

inviting public to subscribe to its share

capital.

There for when a private company is

formed, the requisite capital is obtained

from friends and relatives by making itsown agreement.


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A public company can take following

steps

Issue a prospectus in case public is to be

invited to subscribe to its capital or,

Deliver a statement in lieu of prospectus

where the company has either not issued a

prospectus or though it has issued aprospectus it has not proceed to allot any

of the shares offered to the public for

subscription.


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4.Commencement of business

Every private company and company not

limited by shares can commence business

immediately on receipt of certificate of incorporation.

But a public company limited by shares is

debarred from comencing business onborrowing money without the certificate

of commencment of business.


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Where the company has issued

prospectus- it has to satisfy the following

condition.

The minimum subscription in cash hasbeen received,

Every director of the company has paid in

cash his qualification shares, aproportionpayable on application and allotment on

the shares offered for public subscription.


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No money is liable to be repaid onapplicants for any shares or debentures

which have been offered for public

subscription by reason of any failure toapply for, or to obtain, permission for the

shares or debentures to be dealt in any

recognised stock exchange.


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A statutory declaration duly vreified byone of the directors or the secretary in the

prescribed form that the above conditions

have been complied with, is field withregistrar.


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Where the company has not issued aprospectus- it has to satisfy the follwingcondition.

A statement in lieu of prospectus has beenfield with registrar,

Every director of the company has paid onhis shares in cash, aproportion equal to the

proportion payable on application andallotment on the shares payable in cash.


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A statutory declaration duly verified byone of the secretary in the prescribrd

form, that the above conditions have been

complied with, is filed with registrar .When the company has complied with the

aforesaid conditions, the registrar will

issue a certificate to commence business.


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Documents

Classification and Formation