With our growing economy and people of our nation wanting to start their new businesses and thinking of incorporating a company and wonders what are the kinds of company and which one suits best for their requirement. In this article, I will discuss different kinds of companies.
A company not having any limit on the liability of its members is termed an unlimited company. An unlimited company must have articles of association stating the number of members with which the company is to be registered and if the company has a share capital, the amount of share capital with which it is to be registered. The drawback of an unlimited company is that its members are liable, as the partners of a firm, for all its trade debts without any limit. An unlimited company can get itself re-registered as a limited liability company under Section 18 of the Act. The conversion will not affect any debts, liabilities, obligations, or contracts of the company existing at the time of conversion and such debts, etc.
A company limited by guarantee means a company having the liability of its members limited by the memorandum to such amount as the members respectively undertake to contribute to the assets of the company in the event of its being wound up. Where it is proposed to register a company with limited liability, the choice is to limit liability by shares or by guarantee. The liability of the members of a guarantee company is limited by a fixed sum which is specified in the memorandum and beyond which they cannot be called upon to contribute. The memorandum of a company limited by guarantee has to state that each member undertakes to contribute to the assets of the company in the event of its being wound up, for payment of the debts and liabilities of the company, such amount as may be required not exceeding a specified amount. Further, the articles of association of the company shall state the number of members with which the company is to be registered.
A private company is a company that requires only requires two members to form and is limited to 200 members only. It is a company that requires a minimum paid-up capital of one lakh rupees or such a higher amount as may be prescribed. Moreover, a private company imposes some restriction on the right of its members to transfer their shares in the company and is exempted from all the requirements of the Act relating to the prospectus. Furthermore, the company is required to have a minimum of two directors which may extend up to 15.
Section2(62) defines one person company as meaning a company that has only one person as a member. The memorandum of the one-person company has to state the name of some other person, with his prior written consent in the prescribed form, who will, in the event of death of the subscriber to the memorandum or his incapacity to contract, become the member of the company. Written consent of such person has to be filed with the Registrar at the time of incorporation of the company.
A public company means a company that is not a private company. and whose shares can be freely traded on a stock exchange or over-the-counter. In simple terms, a public company is a company whose shares can be subscribed by members of the public. It has a minimum of seven members, no maximum limit is mentioned along with a minimum paid-up capital of five lacs. A private company that is a subsidiary of a public company, will be considered a public company.
Memorandum of Association must state the objective of the company, the total capital, the name of the company, the registered address, etc. and Articles of Association must contain rules and regulations of the internal management of the company. moreover, Prospectus is issued at the time of incorporation to invite funds from the public.
It is a company, other than a public company, whose paid-up capital does not exceed Rs 50 lakhs, or (if) whose turnover does not exceed Rs. 2 crores.
A foreign company is a company that is incorporated outside India. And according to Section 379, it means a company, which, though incorporated outside India, has a place of business in India, whether by itself or through an agent, physically or through electronic mode, and conducts any business activity in India in any other manner.
Government company means any company in which not less than fifty-one percent of the paid-up share capital is held 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, and includes a company which is a subsidiary company of such a Government company. These companies are registered as private limited companies through their management and their control vest with the government. This is a type of organization where both the government and private individuals are shareholders. Sometimes these companies are called a mixed-ownership company.
Holding company and subsidiary
A holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies. Where one company has control over another, it is called the holding company and the controlled company is the subsidiary. It controls the composition of the Board of directors or holds the majority of shares or has controlled more than half the total voting power in the company or where the holding company’s subsidiary has its own subsidiary.
A company may be called an associate company if it has a significant influence over the other company, but which is not a subsidiary company of the company having such influence and it also includes a joint venture company.
A company that is approved by either the Central or State Legislature e.g. Reserve Bank of India, State Bank of India, Food Corporation of India. A statutory company is usually created with the intention of serving people rather and not with an intention to make a profit.