Privileges and Exemptions to Private Company

Headings Explanation 1. Members Only 2 members are required to form a Pvt. Company.

2. Allotment of shares A Pvt. Company can allot shares without filing a statement in

lieu of Prospectus to ROC.

PRIVATE COMPANY means a company which has a minimum paid-up capital as may be

prescribed, AND by its articles-

a) RESTRICTS the right to transfer its shares, if any;

b) Except in case of one person company, limits the number of its members to two

hundred (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

the members of the company while in that employment and have continued

to be members after the employment ceased; and

c) PROHIBITS any invitation to the public to subscribe for any securities of the

company;

PROVIDED that where two or more persons hold one or more shares in a company

jointly, they shall, for the purposes of this definition, be treated as a single member.

2. Types of company

PRIVATE COMPANY

{SEC– 2(68)}

COMPANY

{SEC- 2(20)}

COMPANY means a company incorporated under this Act or under any previous company law;

3. Issue further capital Restriction relating to further issue of capital does not

apply to Pvt. Company.

4. Demand of Poll One or two persons, present in proxy or person can demand a

poll.

5. No. of directors Only two directors are required in case of Pvt. company.

6. Managerial Remuneration Limits on Managerial Remuneration do not apply on Pvt.

companies.

Q. Your client Vivek wants to form a private company with a share capital of 50,000. Examining

the relevant provisions of the Companies Act, 2013, advise Vivek on the following issues with

proper justification :

(i) Whether Vivek will be successful in the formation of the proposed company ?

(ii) Whether public can be invited for subscribing to the share capital of the proposed company

?

(iii) Whether registration of articles of association of the proposed company is mandatory ?

(iv) Whether Vivek will be able to convert the proposed private company into 'one person

company' at a later date, if need be ?

(v) As regards to stamp duty state whether it will make any difference if the proposed company

is incorporated in the State of Haryana or in the State of Kerala. (Dec, 15(F) – 5 marks)

Hint: Write Definition of Private Company

(i) Private or public company can be started with any capital. So having share capital of Rs.

50,000 doesn’t raise any problem if other provisions relating to registration are met with.

(ii) No, Private company cannot raise capital from the public.

(iii) Yes, Private company is required to register its own Articles.

(iv) Yes, it can be converted into ‘One Person Company’ any time later on by fulfilling relevant

conditions relating to paid up capital, nominee etc.

(v) Yes, Stamp Duty is a State subject, different states have different rates of stamp duty. So

stamp duty shall be payable according to rates prevailing in that State where the Registered

office of the company is proposed to be established.

Q. Is a private company exempt from the operation of section 167? What is its position under

this section? (Dec, 12(F) – 4 marks)

Ans. A private company is not exempt from the operation of section 167. However, as per

section 167, a private company which is not a subsidiary of a public company may, by its articles,

provide that the office of director shall be vacated on any grounds in addition to those

specified in section 167.

Crux: Reasons of vacancy in case of private company not being a subsidiary of public company -

Vacation as per section 167 + Additional Grounds as prescribed in AOA

In case of public company and private companies which are subsidiaries of public companies –

Vacation as per section 167.

PUBLIC COMPANY means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private

company, shall be deemed to be public company for the purposes of this Act even

where such subsidiary company continues to be a private company in its articles;

NOTE: a company registered under section 8 before or after the commencement of

Companies (Amendment) Act, 2000 shall not be required to have minimum paid-up

capital specified in this section.

Where it is proved to the satisfaction of the Central Government that a person or an

association of persons proposed to be registered under this Act as a limited company—

(a) has in its objects the promotion of commerce, art, science, sports, education,

research, social welfare, religion, charity, protection of environment or any such

other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members,

the Central Government may, by licence issued in such manner as may be

prescribed, and on such conditions as it deems fit, allow that person or association

of persons to be registered as a limited company under this section without the

addition to its name of the word “Limited”, or as the case may be, the words

“Private Limited” , and thereupon the Registrar shall, on application, in the

prescribed form, register such person or association of persons as a company under

this section.

Q. Mason (Pvt.) Ltd. is a private limited company as per the articles of associations of the company.

However, a public company acquired shares in Masons (Pvt.) Ltd. thereby making the company,

Masons (Pvt.) Ltd, a subsidiary of that public company. State the impact of such acquisition of shares

by a public company on Masons (Pvt.) Ltd.

Ans. Write Section 2(71)

PUBLIC COMPANY

{SEC– 2(71)}

COMPANY WITH

CHARITABLE

OBJECTS {SEC– 8}

NOTES-

In a company limited by guarantee and having share capital the initial funds are arranged through

share capital, and a member has dual liability- one, for the amount unpaid on the shares held by

him, and second for the amount guaranteed to be paid by him in the event of Winding up.

In a company limited by guarantee and not having share capital the initial funds are arranged

through bank loans, or if such company is in form of CLUB then the monies received as monthly

subscription charges etc.

On the basis of

Registration

On the basis of

Liability

Private

Company

Public

Company

A

company

limited by

shares

A company

limited by

guarantee

An

unlimite

d

compan

y

As per Sec. 2(22), in case of a company

limited by shares, the liability of a member is

limited to the extent of amount unpaid on the

shares held by him.

For example- Mr. A holds 1000 shares of

Rs.10 each (called and paid Rs.7 per share) of

ABC limited. Mr. A is liable to pay balance

Rs.3000 only, even if ABC limited has

outstanding liabilities of Rs. 30 Crores.

In case of company limited by guarantee,

the liability of a member is limited to the

extent of amount guaranteed to be paid by

him in the event of Winding up. {Sec. 2(21)}

Having share

capital

Not having

share capital

One Person

Company

GOVERNMENT COMPANY, means any company in which not less than

51% of paid-up share capital is held by the Central Government, or by

State Government(s), or partly by the CG and partly by SG(s), and

includes a company which is a subsidiary of a Government company as

thus defined.

Q. ABC Ltd. is a company incorporated under the Companies Act, 2013. The paid-up share

capital of the company is held as under :

— Government of India 20%

— Government of Andhra Pradesh 20%

— Government of Tamil Nadu 10%

— Government of Maharashtra 10%

Explaining the provisions of the Companies Act, 2013, state whether the said company be

called a 'Government company' and also state whether the employees of a Government

company can claim their salaries from the Government of India.

Ans. As per section 2(45) of Companies Act, 2013, GOVERNMENT COMPANY, means any company

in which not less than 51% of paid-up share capital is held by the Central Government, or by

State Government(s), or partly by the CG and partly by SG(s), and includes a company which is a

subsidiary of a Government company as thus defined

In the given case, 60% of the share capital is held by Governments, so ABC Ltd. is a Government

company.

In Andhra Pradesh Road Transport Corporation v. ITO AIR 1964 SC 1486, the Andhra Pradesh

State Road Transport Corporation claimed exemption from taxation by invoking Articles 289 of

the Constitution of India according to which the property and income of the State are

exempted from the Union taxation. The Supreme Court, while rejecting the Corporation’s claim,

held that though it was wholly controlled by the State Government, it had a separate entity and

its income was not the income of the State Government.

The Court observed that the companies which are incorporated under the Companies Act, have a

corporate personality of their own, distinct from that of the Government of India. The land and

buildings are vested in and owned by the companies, the Government of India only owns the

share capital.

So Government Company is an entity apart from Government, so Government cannot be liable for

the acts of the company.

GOVERNMENT

COMPANY

{SECTION-

2(45)}

HOLDING COMPANY in relation to one or more other companies, means a company of which

such companies are subsidiary companies;

“SUBSIDIARY COMPANY” OR “SUBSIDIARY”, in relation to any other company (that is to say

the holding company), means a company in which the holding company—

i. controls the composition of the Board of Directors; or

ii. exercises or controls more than one-half of the total share capital either at its own or

together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have

layers of subsidiaries beyond such numbers as may be prescribed.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if

the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary

company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by

another company if that other company by exercise of some power exercisable by it at

its discretion can appoint or remove all or a majority of the directors;

(c) the expression “company” includes any body-corporate;

(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;

The Companies (Specification of Definitions details) Rules, 2014

As per 2(1)(r) “Total Share Capital”, for the purposes of sub- sections (6) and (87) of section 2,

means aggregate of the:-

a) paid-up equity share capital and

b) convertible preference share capital

“HOLDING

COMPANY” {SEC–

2(46)}

“SUBSIDIARY

COMPANY” {SEC–

2(87)}

Subsidiary company not to hold shares in its holding company (Section 19)

(1) No company shall, either by itself or through its nominees, hold any shares in its holding

company and no holding company shall allot or transfer its shares to any of its subsidiary

companies and any such allotment or transfer of shares of a company to its subsidiary

company shall be void:

Provided that nothing in this sub-section shall apply to a case—

(a) where the subsidiary company holds such shares as the legal representative of a

deceased member of the holding company; or

(b) where the subsidiary company holds such shares as a trustee; or

(c) where the subsidiary company is a shareholder even before it became a subsidiary

company of the holding company:

Provided further that the subsidiary company referred to in the preceding proviso shall have

a right to vote at a meeting of the holding company only in respect of the shares held by it as

a legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said

proviso.

(2) The reference in this section to the shares of a holding company which is a company limited by

guarantee or an unlimited company, not having a share capital, shall be construed as a reference to

the interest of its members, whatever be the form of interest.

Q. A body corporate cannot become a member of a company which is its holding company and any

allotment or transfer of shares in a company to its subsidiary shall be void”. Explain the statement

and comment on the exception to the said general rules. (Dec, 06 – 4 marks)

Ans. Write Section 19

Q. Vayu Ltd. holds more than 50% of nominal value of the equity capital of Stream Ltd. In these

circumstances, Stream Ltd. wants to become a member of Vayu Ltd. Can Stream Ltd. do so? Discuss

the rights of the said subsidiary in such a case.

Ans. Write Section 2(87) and 19.

Q. Reliable Ltd. holds 75% of the paid-up share capital in Trust Ltd. Board of directors of Trust Ltd.

decides and resolves to hold 10% of the paid-up share capital in Reliable Ltd. The Board's proposal

was also approved by Trust Ltd. in its general meeting. However, certain members of Trust Ltd.

objected to the decision on the ground that both the Board's proposal and the resolution of the

general meeting are in violation of the provisions of the Companies Act, 2013. Examine. (Dec, 15- 4

marks)

Ans. Decision is void, write section 19.

ASSOCIATE COMPANY, in relation to another company, means a company in which that

other company has a significant influence, but which is not a subsidiary company of the

company having such influence and includes a joint venture company.

Explanation.—For the purposes of this clause, “significant influence” means control of at

least 20% of total share capital, or of business decisions under an agreement;

‘‘SMALL COMPANY’’ means a company, other than a public company,—

i. paid-up share capital of which does not exceed fifty lakh rupees or such higher

amount as may be prescribed which shall not be more than five crore rupees; and

ii. turnover of which as per its last profit and loss account does not exceed two

crore rupees or such higher amount as may be prescribed which shall not be more

than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

“ASSOCIATE

COMPANY” {SEC– 2(6)}

“SMALL COMPANY”

{SEC– 2(85)}

Documents to be filed by Foreign Companies with ROC Every foreign company shall, within 30 days of the establishment of its place of business in

India, deliver to the Registrar for registration [Section 380(1)] – a. a certified copy of the charter, statute or memorandum and articles of the company or

other instrument constituting or defining the constitution of the company and if the

instrument is not in English language, a certified translation thereof in the English language;

b. the full address of the registered or principal office of the company;

c. a list of the directors and secretary of the company with particulars;

d. the names and addresses of one or more persons resident in India authorised to accept on

behalf of the company service of process and any notices or other documents required to be

served on the company;

e. the full address of the office of the company in India which is deemed to be its principal

place of business in India;

f. particulars of opening and closing of a place of business in Indian on earlier occasions;

g. declaration that none of the directors of the company or authorised representative in India

has ever been convicted or debarred from formation of companies and management in India

or abroad; or

h. other prescribed particulars

In addition to above, a list of directors and Secratary of company, needs to be delivered to the

Registrar (Rule 3) of Companies (Registration of Foreign Companies) Rules, 2014.

The Foreign Company shall, within a period of 30 day of establishment of its place of business in

India, file Form FC – 1 of the Companies (Registration of Foreign Companies) Rules 2014 and the

application shall also be supported with an attested copy of approval from Reserve Bank of India

under Foreign Exchange Management Act or Regulations and also from other Regulators, if any.

Along with the Companies Act, 2013 provision of Foreign Exchange Management Act 1999 and

regulations made thereunder shall also be applicable

FOREIGN COMPANIES

{SEC- 2(42)}

FOREIGN COMPANY means any company or body corporate incorporated outside India which—

(a) has a place of business in India whether by itself or through an agent, physically or

through electronic mode; and

(b) conducts any business activity in India in any other manner.

Q. Referring to the provisions of the Companies Act, 2013, state as to when shall a company

incorporated outside India be considered as a 'foreign company' within the meaning of the

Companies Act, 2013. Also examining the provisions of the Act, state whether in the following

cases, the company shall be considered as a 'foreign Company' :

(i) A company incorporated outside India has a representative in India, who on behalf

of the company merely receives orders from the customers.

(ii) A company incorporated outside India holds its Board meetings and general meetings

in India.

Ans. As per Section 2(42) of the Companies Act, 2013, Foreign Company means any company or

body corporate incorporated outside India which—

(a) has a place of business in India whether by itself or through an agent, physically or

through electronic mode; and

(b) conducts any business activity in India in any other manner.

(i) A company incorporated outside India has a representative in India, who on behalf

of the company merely receives orders from the customers, in such a case, it was held that

it was not a “place of business”. (P.J Johnson v. Astrofiel Armadorn)

(i) Conducting meetings of shareholders or even directors has been held to be “place of

business”.

Q. To consider a body corporate as a foreign company, a place of business in India is to be

established. State the activities that do not constitute carrying of business in India. (June, 15

– 4 marks)

Ans. Following activities are held not constituting carrying on of business in India.

a) Carrying small transactions.

b) Conducting meeting of shareholders or even directors.

c) Operating bank accounts.

d) Transferring of shares or other securities.

e) Operating through independent contractors.

f) Procuring orders.

g) Creating or financing of debts, charges etc. on property.

h) Securing or collecting debts or enforcing claims to property of any kind.

Q. William & Company, a company incorporated in U.K., decides to set-up its corporate office in

Mumbai. Accordingly, the Board of directors of the company passes a resolution.

The Board seeks your advice on the procedure to be adopted to carry out the proposal of the

company. Advise the Board about the procedure to be followed and forms and documents the

company is required to file with the Registrar of Companies. (Dec, 15(F) – 5 marks)

Hint: Write procedure related to filing of documents with ROC

Q. Whether director of a foreign company is required to have DIN?

Ans. No. However, he has to provide his PAN to ROC and if he doesn’t have PAN then a

declaration in the prescribed Performa is to be attached to the Form No. INC delivered to ROC

informing the particulars required.

Q. A group of persons wants to form a company for a future project and acquire the status of a

'dormant company'. The group seeks your advice about the procedure and the conditions to be

complied with. State the privileges and exemptions available to such a company under the

provisions of the Companies Act, 2013.

Ans. Where a company is formed and registered under this Act for a future project or to hold an

asset or intellectual property and has no significant accounting transaction, such a company or an

inactive company may make an application to the Registrar in such manner as may be prescribed for

obtaining the status of a dormant company.

DORMANT

COMPANY {SEC–

455(1)}

Where a company is formed and registered under this Act for a future project or to hold an

asset or intellectual property and has no significant accounting transaction, such a company or an

inactive company may make an application to the Registrar in such manner as may be prescribed

for obtaining the status of a dormant company.

Explanation.—For the purposes of this section,—

(i) “inactive company” means a company which has not been carrying on any business or

operation, or has not made any significant accounting transaction during the last two

financial years, or has not filed financial statements and annual returns during the last 2

financial years;

(ii) Whether single or in aggregate, such company shall comply with the provisions of the

Companies Act as though it were a company incorporated in India.

(iii) Further, the provisions of Section 159, 209,209A and certain Sections relating to

audit and investigations are also applicable to the Indian operations of such a company.

Procedure & Conditions

Application – Such company make an application to Registrar for obtaining status of a Dormant

Company.

Registration Certificate - As per section 455(2), the Registrar on consideration of the

application shall allow the status of a dormant company to the applicant and issue a certificate in

form MSC-1.

Register by ROC - Section 455(3) provides that the Registrar shall maintain a register of

dormant companies in such form as may be prescribed.

Register of Defaulter Companies as Dormant Companies - According to section 455(4), in

case of a company which has not filed financial statements or annual returns for two financial

years consecutively, the Registrar shall issue a notice to that company and enter the name of such

company in the register maintained for dormant companies.

Minimum Directors - A dormant company shall have a minimum of three directors in case of

public company and two in case of private company and one in case of One Person Company.

Return - The dormant company shall have to file a Return of Dormant company annually, inter

alia, indicating financial portions duly by chartered accountant in practice alongwith prescribed

annual fee within thirty days from the end of each financial year.

Striking off the name - The Registrar shall strike off the name of a dormant company from the

register of dormant companies, which has failed to comply with the requirements of this section.

[Section 455(6)]

Privileges of a Dormant Company.

The privileges and exemptions enjoyed by a dormant company or its advantages over other

companies are as follows:

Section Nature of exemptions/privileges

2(40) The financial statement, with respect to a dormant company, may not include

the cash flow statement;

173 (5) It is required to hold at least one meeting of the Board of Directors in each half

of a calendar year and the gap between the two meetings should not be less

than ninety days.

Government Company as ‘State’ under Articles 12 of the constitution of India

Nidhi Companies (Section 406)

“Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating

the habit of thrift and savings amongst its members, receiving deposits from, and lending to,

its members only, for their mutual benefit, and which complies with such rules as are

prescribed by the Central Government for regulation of such class of companies.

According to Rule 4 of Nidhi Rules, 2014; a Nidhi Company shall be a public company and must

have a minimum paid up equity share capital of five lakh rupees. The Nidhi Company shall have

only one object in its memorandum that is of cultivating the habit of thrift and savings amongst

its members, receiving deposits from, and lending to, its members only, for their mutual

benefit. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as

part of its name. Rule 5 say, every Nidhi shall, within a period of one year from the commencement of these

rules, ensure that it has: a) Not less than two hundred members.

b) Net Owned Funds of ten lakh rupees or more.

c) Unencumbered Term Deposits of not less than ten per cent of the outstanding deposits.

d) Ratio of Net Owned Funds to deposits of not more than 1:20.

The process of incorporation of a nidhi company is same as of incorporation of a public company

limited by share.

SUPREME COURT IN R.D. SHETTI VS. INTERNATIONAL AIRPORT, held that

following instances should be considered to decide whether a corporation is come under the

definition of State given under Article 12 of the Constitution or not.

Whether corporation has monopolistic status or not;

Whether corporation is carrying on its functions of the public interest, or of sovereign

(government) character.

Whether the financial support is provided to such corporation by the CG or State Govt.

Whether it was a government department at the time of initial establishment.

The deep & pervasive control of the CG or SG on the day to day basis.

Basis of difference

Company Partnership firm

i. Formation A company is created by

registration under the

Companies Act.

A partnership is created by

agreement which may be expressed

or implied from the conduct of the

partners and is subject to the

Indian Contract Act and the Indian

Partnership Act.

ii. Status At Law A company is an artificial legal

person with perpetual

succession. Thus a company may

property, make contracts and

sue and be sued. It is an entity

distinct from its members.

A partnership is not a separate

legal though it may sue and be sued

in the firm’s name. Thus the

partners own the property of the

firm and are liable for the

contracts of the firm jointly as

well as severally. But a LLP is a

Separate Legal Entity

iii. Transfer Of

Shares Shares in a company are freely

transferable unless the

company’s constitution

otherwise provides;

restrictions may, of course,

appear in the articles of a

private company.

A partner can transfer his shares

in the firm, but the assignee does

not thereby become a partner and

is merely entitled to the assigning

partner’s share of the profits.

iv. Number Of

Members/

Partners

Private Company:

Minimum – 2

Maximum – 200

Public Company:

Minimum – 7

Maximum – no limit

Section 464 deals with maximum

number of partners in a firm. It

cannot exceed the numbers

prescribed by Rules. But in no case

such numbers will exceed 100. At

present , limit prescribed is 50.

v. Management Members of a company are not

entitled to take part in the

management of the company

unless they become directors.

All Partners are entitled to

participate in the management of

the firm unless the deed provides

otherwise.

vi. Liability Of

Members The liability of a member of a

company may be limited by

shares or by guarantee, as the

case may be.

The liability of a partner is

unlimited. But in case of LLP, it is

limited to extent of liability

undertaken.

DIFFERENCE BETWEEN COMPANY

AND PARTNERSHIP

vii. Agency A member of a company is not

an agent of the company or

that of other members, and he

cannot bind a company by his

acts.

Each partner is an agent of the

firm and his partners, and may bind

the firm by his acts.

viii. Powers The affairs of accompany are

closely controlled by the

Companies Act, 2013 and the

company can only operate within

the objects laid down in the

memorandum of association,

though these can be altered to

some extent by

special resolution.

Partners may carry on any business

as they please so long as it is not

illegal and make whatever

arrangements they wish with

regard to the running of the firm

from time to time.

ix. Termination Even one member of a company

may apply for the winding up of

the company, and the death,

bankruptcy or insanity of a

member does not mean that the

company must be wound up.

A partnership may be dissolved by

any partner at any time unless the

partnership is entered into for a

fixed period of time. A partnership

is also dissolved by the death or

bankruptcy of a partner.

Basis of difference

Private company Public company

i. Definition Acc. To Sec. 2(68) "Private

company" means a company

which has a minimum paid-up

capital as may be prescribed,

and by is articles, -

a) restricts the right to

transfer its shares, if any ;

b) except in case of one

person company limits the

number of its members to

200;

c) prohibits any invitation to

Acc. To Sec. 2(71) "Public

company" means a company

which -

a. is not a private company ;

b. has a minimum paid-up

capital as may be

prescribed ;

is a private company which is a

subsidiary of a company which

is not a private company.

DIFFERENCE BETWEEN PUBLIC COMPANY AND

PRIVATE COMPANY

the public to subscribe for

any securities of the

company

ii. Transferability of

shares

There are certain restrictions

on the transferability of the

shares of a Private Company .

Shares of a public company are

freely transferable.

iii. Issue of Prospectus A Private Company is prohibited

from inviting the public for

subscription of its shares, i.e. a

Private Company cannot issue

Prospectus

Whereas there is no

restriction on the

transferability of the shares

of a Public company

iv. Number of

Directors

A Private Company must have at

least 2 directors to manage the

affairs of the company

Whereas a Public Company

must have at least 3 directors

v. Shares Warrants A Private Company cannot issue

Share Warrants against its

fully paid shares

Whereas a Public Company may

issue Share Warrants against

its fully paid up shares.

vi. Further issue of

shares

A Private Company need not

offer the further issue of

shares to its existing share –

holders

Whereas a Public Company has

to offer the further issue of

shares to its existing share –

holders as right shares.

Further issue of shares can

only be offer to the general

public with the approval of the

existing share – holders in the

general meeting of the share –

holders only.

vii. Managerial

remuneration

Private companies need not to

follow company law provisions

for the payment of managerial

remuneration

A public company has to comply

the provisions of for the

payment of Managerial

remuneration.

Basis of difference

Guarantee company Company having share capital

i. Meaning A company is called guarantee

company if the MOA of that co.

states that liability of the members

is restricted to the amount that

they have guaranteed to pay in the

A Company shall be called

company limited BY SHARES,

if MOA of that company

states that liability of the

members is restricted to the

DIFFERENCE BETWEEN GUARANTEE COMPANY AND

COMPANY HAVING SHARE CAPITAL

event of winding up. unpaid value of the shares.

ii. Share Capital This company may or may not have

share capital

This company must be a Co.

limited by share capital

iii. liability In case Guarantee Company

having share capital:

Unpaid value of the shares+

amount guaranteed to pay

In case of Guarantee Company

not having share capital:

Amount guaranteed to pay in

the event of winding up.

In this case members are

liable only up to the unpaid

value of the shares.

iv. When does

liability arise?

Only in the event of winding up Can arise any time during the

life time of the company or in

the event of winding up.

Whenever a valid call is made.

v. Requirements as

to articles

AOA has to specify the number of

members with which it is going to

register.

THE AOA of that company is

need not to specify the

NUMBER OF members.

vi. Requirements of

own articles

This company must have its own

articles.

This type of company may

adopt Table A

vii. Minimum Paid up

capital

The requirement of minimum paid up

capital does not apply to a company

limited by guarantee having share

capital.

Earlier there was requirement

of having minimum paid up

capital. But with the

‘Companies (Amendments)

Act, 2015, this requirement is

abolished.

viii. Suitability Suitable in those cases, where

initial capital requirement is not

more, can be arranged from the

other sources like endowment fees,

charges, donations or other

borrowings.

These are suitable in those

cases where initial capital

requirement is high and

sufficient financial resources

cannot be arranged by way of

borrowings.

Basis of difference

Company Limited liability partnership

i. Governing Law Companies Act, 2013 and

various Rules made there under.

The Limited Liability

Partnership Act, 2008 and

various Rules made there under.

ii. Time line It will take approx. 15 days to

incorporate ( inclusive of time

taken to obtain DIN)

It will take approx. 20 days to

incorporate ( inclusive of time

taken to obtain DPIN)

iii. Expense of

formation

High Low

iv. Taxation It is a separate taxable entity Now, it is also a separate

taxable entity.

v. Name Suffix ‘Limited’ or ‘Private

Limited’ has to be added to the

name

Suffix ‘LLP’ or Limited Liability

Partnership has to be added to

the name.

vi. Ownership of

Assets

The company has ownership of

assets and members only have

shares in the company

The LLP has ownership of assets

and Partners only have capital

contribution in the LLP

vii. Liability Liability of members is only

limited to the shares held by

Liability of partners is limited

up to their capital contribution

Basis of difference

Company Hindu joint family business

i. Type of

members

It usually consists

heterogeneous members

It always consists homogeneous

members.

ii. In case of a company, the

management is in the hands of

Board of Directors.

In a HUF, the Karta (manager) has

the sole authority to contract debts

for the purpose of the business,

other coparceners cannot do so.

iii. Mode of

becoming the

member

To become a member of a

company, certain procedure is

to be followed.

A person becomes a member of Joint

Hindu family by virtue of birth.

iv. Registration Registration of a company is

compulsory.

Registration of HUF is not

compulsory.

DIFFERENCE BETWEEN COMPANY AND

HINDU JOINT FAMILY BUSINESS

them. however in case a partner acts

with an intension to conduct

fraud, they are personally liable.

viii. Agency

Relationship

The Directors act as agents of

the company

Partners are agents of LLP

ix. Power of Member\

Partner\ Director

Directors have power to

conduct day to day affairs of

the company, Member

practically have no say in the

management

The power of partners/

designated partners to conduct

the day to day affairs is

specified by LLP agreement /

LLP act.

x. Transferability of

interest

Shares of every company

except private company are

freely transferable.

Rights/ interest of partners

are transferable as per the

provisions of LLP agreement

xi. Share Certificate Right/ Interest of the

members in the company is

denoted by share certificate

There are no provisions for

issuing of Share Certificate.

Rights/ Interest of the

Partners in the LLP are

evidenced by Partnership

agreement.

xii. Minimum Capital

requirement

No Requirement of Minimum

Paid up capital.

No such requirement.

xiii. Books of Accounts Books of accounts must be

prepared as specified in the

Companies Act, 2013

Books of accounts must be

prepared as specified in the LLP

Act.

xiv. Manner of Keeping

Books of Accounts

Accrual basis Cash basis or accrual basis.

xv. Audit of Accounts As per the provisions of

companies Act, 2013 accounts

have to be audited annually

As per the provisions of LLP act,

accounts to be audited annually

except for LLP’s having turnover

less than Rs. 40 lacs or Rs. 25

lacs contribution in any financial

year.

xvi. Director

Identification

Number /

Designated

Partner

Identification

Number

Each Director required to have

a Director Identification

Number before being appointed

as a Director of any company

Each Designated partner

required HAVING a DPIN

before being appointed as a

Designated Partner of LLP.

xvii. Minimum Number

of Member

Minimum two for private

Company and minimum seven

for public company as per the

Companies Act, 2013

Minimum two partners

xviii. Maximum number

of Member

Maximum 200 in case of Private

Company and no cap of maximum

number of Member in Public

No cap of maximum number of

its partners

Company as per the Companies

Act, 2013

xix. Designated

partner/ Director/

Managing Partner

Minimum two directors in case

of Private company and minimum

three in case of Public company.

Minimum two designated

partner.

xx. Drawing Drawings are not permitted Drawings are permitted as per

the LLP agreement

xxi. Transfer of Share

/ Partnership

rights in case of

death

In case of death of member,

shares are transmitted to the

legal heirs.

In case of death of partner, the

legal heir has the right to

refund of capital contribution +

share in accumulated profits, if

any. Legal Heirs will not become

partners