Companis Act 2 (Kinds of companies)

8/7/2019 Companis Act 2 (Kinds of companies)

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CHAPTER 2

KINDS OF COMPANIES

1. Whatis the difference between publicco. and privateco.?Ans:

Accto sec 3(1) (iii),A privateco is acowhichhas min paid up capital of Rs 1

lakhand has followingrestrictions in its AOA:

a. Minimum numberof members is 2 and maximum is 50 excludingthosewhoareorwere intheemploymentoftheco.b. Restricts the freetransferof shares.c. Cannotinvitethegeneral publicto subscribetothe shares and debentures of

theco.

d. Cannotacceptdeposits from thegeneral public.e. Musthaveatleasttwo directors and usetheword pvtltd with its name.Accto sec 3(1) (iv), A publicco is acowhich is nota privateco.

Publicco is acowhichhas min paid up capital of Rs 5 lakhs and includes a pvtco

which is a subsidiaryofa publiccoand does nothaverestrictions in its AOA i.e.min 7 members arerequired to form a publicco., max-no limit, freetransferof

shares is there, can invitegeneral publicto subscribeto its shares and

debentures, canacceptdeposits from the public, itmusthaveatleast3 directors

and usetheword ltd. after its name.

DIFFRENCE

BASIS PRIVATE COMPANY PUBLIC COMPANY

Minnoof members 2 7

Maxnoof members 50 No limit

Transferof shares Restricted transfer Freetransfer

Min paid up capital 1 lakh 5 lakh

Minnoof directors 2 3


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CCB Notrequired atall. Can start

business aftergetting COI

Compulsorilyrequired after

getting COI

Quorum forthe

meeting

2 members personally present 5 members personally

present

Statutory meetingand

statutoryreport

Notrequired atall Compulsorilyto beheld once

in lifetimeafter 1 monthof

getting CCBorwithin 6months ofgetting CCB

Prospectus or

statementin lieu of

prospectus

Notrequired atall Compulsorilyrequired

Useofword pvt

ltd./ltd.

Compulsoryto use pvtltd Onlyword ltd to be used

Writtenconsentof

directors and

qualification shares

Notrequired atall Compulsorilyrequired. Every

directorhas to filehis

writtenconsenttoactas

directorwithregistrarand

alsoobtainqualificationshares within 2 months of

appointment.

Appointmentof

directors

All directors areappointed bya

singleresolution

Every director is appointed

bya separateordinary

resolution

Maxremunerationof

directors

No max limitis mentioned. Can

decideon its own.

Fixed atmax 11% ofnet

profits.

Retirementof directors

orrotational directors

Directors dontretire byrotation 2/3 oftotal noof directors

arerotational directors out

ofwhich 1/3 mustretire

compulsorilyatAGM

Indexofnumbers Notrequired because maxno is

limited to 50

Compulsorilyrequired ifno

of members exceed 50

Minimum subscription Notrequired beforeallotting

shares

Compulsorilyrequired

beforeallotting shares.

2. How publicco is converted into privateco?Ans:

Section 31

(Define publiccompanyand privatecompany)

Yes, a publiccocan beconverted intoa privateco by followingthe following

procedure:

a. A SR is to be passed toalterthe AOA (wewill havetoadd therestrictionsapplicable in pvtco)

b. Copyof SR is to be filed with ROC compulsorilywithin 30 days from the dateofpassingof SR.

c. Approval of CG is compulsorilyrequired forconversion.


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d. u/s 21 ofcompanies act, tochangethenameofco from public ltd to private ltd, aSR is to be passed and copy filed with ROC within 30 days.

e. Maxnoof members to bereduced to 50 if its morethanthat.3. How privatecompany is converted into publiccompany?

Ans:Yes, a privatecocan beconverted into publicco by followingthe following

procedure/methods:

Thereare 3 methods forconversion:

a. Conversion by default[u/s 43]b. Conversion byoperationof law [u/s 43(a)]c. Conversion bychoice [u/s 44]A. Conversion by default[u/s 43]

a. Ifa pvtco. makes a defaultincomplyingwiththerestrictions, itwill beconverted automatically intoa publicco.

b. However ifthe defaultis bychanceand pvtco. wants tocontinueas pvtco. because manyexemptions and privileges areavailableto it. An

application is to be madeto CG with prescribed fees and necessary

documents.

c. CG grants reliefas itthinks fitand equitable.B. Conversion byoperationof law [u/s 43(a)]

a. Sec 43(a) is regarding deemed publiccos. whichhavenow becomeinoperativeaftercompanies amendmentactof 2000.

b. Afterthis act, new sec 43(a) (2A), all existing deemed cos. will now betreated as pvtcos. forwhichapplication is to be madeto ROC and hewill

makethechange inthe MOA and afterthis thechangewill becomeeffective.

C. Conversion bychoice [u/s 44]a. SR is to be passed and its copy is filed with ROC within 30 days.b. Min paid up capital is to be increased if its less than 5 lakhs.c. Minno. of directors is to be increased to 3 directors.d. Minno. of members is to be increased to 7 if itis less thanthat.e. A copyof prospectus prepared accordingto schedule II of Companies Act

or statementin lieu of prospectus accordingto Schedule IV (as thecase

may be) is to be filed with ROC.

f. CCB is to beobtained when itis converted into publicco. and thewordpvtltd. will beremoved.g. ROC will makenecessarychanges in COI, AOA and MOA.

4. Writenotes on:y Associationnotfor profit[licensed companies]y Govt. companiesy Statutorycompanies


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y ForeigncompaniesAns:

y Associations notfor profit[Licensed companies]a. Thesearealsocalled as Sec 25 companies orLicensed Companies.b. Thesecos. are formed forthe promotionofart, science, religion,

culture, charityoranyother useful object.

c. They donotdistributetheir profit.d. Theyapplytheir profits forthe promotionoftheirobjectives.e. Thesecos. havetoobtaintheir license fortheirworking from CG

whichcan berevoked iftheconditions arenotfulfilled bythe

company.

f. Thesecos. can be incorporated as public ltd. or pvtltd. buttheyarenotrequired to puttheword ltd or pvtltd. aftertheirname. For eg:

Chambers of Commerceand Industry, Delhi Go lf Club, Delhi

Gymkhana Club.

g. Ifthe license is cancelled bythegovt. thentheyhavetoadd theword ltd or pvtltd. aftertheirname. Foreg. Ifchambers of

commerce is a licensed co. and thegovt. cancels its license, then

theco. has toremovethesethreewords from its nameotherwise

there is a fineof Rs 5000/- per daytill the defaultcontinues.

h. Theyarenotrequired tohave min paid up capital of 1 lakh/ 5lakhs [applicableto pvtand publicco.].

i. u/s 275-279, a personcan becomea director in max 15 companies.However directorship of licensed co. is notcounted incounting

maxno. 15.

j. A partnership firm can becomea memberof licensed co. onlyandon dissolutionof partnership firm, membership comes toanend.

k. CG grants exemptions to licensed cos. from timetotime bynotification from theapplicationofcertain sections/ provisions of

companies act.

y Govt. companiesa. A govt. co. is aco. inwhichnotless than 51% ofthe paid up share

capital is held either bycentral/ state/ jointly by stateorcentral

govt. or by morethanonegovt. co. or jointly bygovt. corporations

and includes a subsidiaryofagovt. co. Foreg: MMTC, SAIL, ONGC,

OIL, NTPC.

b. A govt. co. can beregistered as a pvtco. ora publicco. butitis notrequired to usetheword pvtwith its name.

c. A govt. co. is a separate legal entityand its members arenotcivilservants orgovt. servants.


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d. Theaccounts ofthegovt. co. areaudited bytheauditorappointedbythe CAG of India. Hecanaskfor supplementarytestauditat

anytime. Theauditreportis to be presented tohim whowill make

thenecessarycomments on it. This auditreportis to be presented

withtheannual reportbefore boththehouses of parliamentwhere

only CG is the member because inthatcaseannual reportisprepared bythe CG and where stategovt. is the memberthenthe

annual reportis prepared by stategovt. and presented tohouseof

stategovt. alongwiththeauditreport.

e. Thegovt. co. is exempted from certain sections ofcompanies actbyCG notifications from timetotime.

f. Ifgovt. co. is performing functions ofnational importancethen itcan betreated as agencyofthe stateand its members as civil

servants.

g. Inthecaseof HEAVY MAZDOOR UNION LTD VS STATE OF BIHAR,itwas held thatgovt. co. is nottheagencyof stateeven ifall theshares wereheld bythegovt. ofBihar.

Note: generallygovt. cos. are incorporated as pvtcos. becauseonly 2

members arerequired to form a pvtco. and manyexemptions and

privileges areavailableto pvtco.

y Statutorycompaniesa. All thosecompanies whichare formed orregistered under special

actof parliamentor state legislature.b. Thesecos. are formed to perform some functions of public utility.

Foreg. RBI is formed under RBI Act, 1949, LIC underLIC Act, 1956.

c. Thesecos. donotrequire MOA becausetheyaregoverned bythespecial actunderwhichtheyareregistered.

d. Theyarenotrequired to usetheword ltd. aftertheirname.e. Theiraccounts areaudited by CAG of Indiaand theirannual report

alongwithauditreportneeds to be presented to boththehouses

of parliamentor state legislature.

yForeign Companya. A co. which is incorporated outside India buthas a placeof

business in India is a foreignco.

b. A co. registered in India buthavingall shareholders as foreignshareholders, thatco. will notbetreated as a foreignco. butwill be

treated as Indianco.

c. A foreignco. inwhichoneor more Indiancitizens oroneor more Indiancos. orcombinationof bothholds notless than 50% of


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sharecapital of foreignco. will betreated as Indianco. under

companies act.

d. Every foreignco. has to filethecopyof following documents withregistrarof New Delhi as well as theregistrarof state (India)

where principal placeof business existin India:

i.) Thecopyofthecharteror statute (Act) ofa foreignco.where itis incorporated togetherwith MOA, AOA,

prospectus in English languageand one local language.

ii.) Full address oftheregistered address ofthecompany inEnglish.

iii.) Nameand addresses, occupations, particulars ofdirectorships, nationalityoforiginofall the directors and

secretaryof foreignco.

iv.) Thenames and addresses ofall the persons in Indiawhocanreceivenotices on behalfof foreignco. in India.

v.) The foreignco. mustmentionoutsideevery placeofbusiness in India, inall business letters, publications,

magazines, thenameand countryof incorporation in

Englishas well as in local language. Itmustalso mention in

prospectus whether liabilityof its members is limited.

vi.) Ifthe foreignco. fails tohaveany place in India itdoes notneed to fileabove documenttoregistrar butitmustbe

informed toregistrarwithin 30 days. Accto sec 209, every

foreignco. is supposed to prepare 3 copies of its world

accounts and 3 copies of its audited balance sheetof its

Indianco. accordingto schedule VI ofcompanies act. Thesedocuments need to be filed withregistrarwithin 9 months

ofcloseof financial yeareveryyear.

vii.) If foreignco. fails tocomplywithabove provisions there is afineof Rs 10000 plus acontinuing fineof Rs 1000 per day

for period of default.

5. One mancompany is a perfectly valid company. Comment. Doyou agreeornot.Ans:

Above statementis absolutelycorrectwhereone manholds the majority sharesoftheco. and hetakes fewother members justtohave 2 or 7 members to

registeras privateco. or publicco. respectively.

Foreg. Salomon VS Salomon & Co. Ltd. caseand Lee VS Lee Air FarmingLtd. are

liveexamples ofone manco. and co. had separate legal entityall together

differentfrom Mr. S and Mr. L (Giveonecase in detail.).

6. Writeanoteonholdingco. and subsidiaryco.


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Ans: sec 4 and sec 212-214

A. A holdingco. is aco. whichcontrols theotherco. and theco. whic h iscontrolled is the subsidiaryco.

B. A holdingco. is aholdingofanotherco., ifthatanotherco. is its subsidiaryco.C. A holdingco. controls the subsidiaryco. by:

a. Controllingthecompositionof directors ofa subsidiaryco.: Holdingco.has therighttoappointorremovethe majority directors orall the

directors ofthe subsidiaryco. This power is giventotheholdingco. either

because itholds (i) morethanhalfoftheequity sharecapital of subsidiary

co. or (ii) by provisions inthe MOA or AOA or (iii) bycontractwith

subsidiaryco.

b. Holdingco. holds morethanhalfoftheequity sharecapital of subsidiaryco.

c. Holdingco. holds morethanhalfofthetotal voting powerofa subsidiaryco.

d. A subsidiaryofa subsidiary is a subsidiaryofaholding co.Foreg. S1 and S2 are subsidiaryofco. H. This means H is aholdingco.

S1and S2 holds morethanhalfoftheequity sharecapital ofco. D. H

does nothaveany directinvestmentin D, butaccordingtothis point, D

automatically becomes subsidiaryof H.

PRACTICAL PROBLEM:

ABC PvtLtd. has a paid up sharecapital of 50 lakh divided into 5 lakh

shares of Rs 10 each. XYZ PvtLtd. and PQR PvtLtd both individually hold

150000 shares and 120000 shares in ABC PvtLtd.

Discuss the positionwithregards tothecompanies act. Will theanswer bedifferentif PQR PvtLtd itselfholds 270000 shares in ABC Ltd and XYZ Pvt

Ltd. does nothold anything?

Ans:

The presentis thecaserelatingto provisions ofholdingand subsidiaryco.

Here ABC PvtLtd is a subsidiaryof XYZ PvtLtd because XYZ togetherwith

its subsidiary PQR PvtLtd. holds morethanhalfoftheequity sharecapital

i.e. Rs 27 lakhs in ABC PvtLtd.

Answerwill bethe same if PQR Ltd holds 270000 shares.

This means ABC PvtLtd is a subsidiaryof PQR Ltd and PQR Ltd is

subsidiaryof XYZ PvtLtd. So by definition u/s 4, ABC PvtLtd. is asubsidiaryof XYZ PvtLtd.

e. Accto sec 212-214, everyholdingco is required to presentconsolidationaccountfor its entire subsidiaryeveryyearto presentacombined viewof

thecos. underthe same management.

f. A corporate veil is lifted to find outrelationship ofholdingand subsidiaryco.


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g. u/s 77(B) aholdingco. cantrepurchaseor buy backthe shares of itssubsidiaryco.

Note: Therelationship ofaholdingco. and subsidiaryco. will notinclude

the shares held ina subsidiaryco. as a security for sometransactions or

by lendingco., ina borrowingco., in fiduciaryco., etc.

Documents

Companis Act 2 (Kinds of companies)