Chapter: 5 Types of Companies

Types of companies

Introduction
We will try to understand the Carts nature of corporate existence in this Chapter.

Types of companies
The various companies recognized by the Company Act 1956 are as follow:

Un-incorporated Company:
Un-incorporated companies are large partnerships. Their shares may be transferable, but liability of their members is unlimited. These companies continue even after the death or insolvency of a member, such company can no longer be formed under Company Act, 1956. If the number of company member carrying on banking business exceeds 10 and 20 in case of any other business..

Statutory Company:
These are the companies which are created by Special Act of legislature. e.g. The RBI and LIC etc. These are mostly concerned with public utilities e.g. Railways, gas and electricity company etc. The provisions of the Company Act, 1956 apply to them if they are not inconsistent with the provisions of the Special Act under which they are formed.

Company with Limited Liability:
Where the liability of the members of the company is limited to the amount unpaid on the shares, such a company is known as a company limited by shares. The liability can be enforced during the existence of the company as also during the winding up of the company. If the shares are fully paid, the liability of the members holding such shares is nil. There is one exception under section 45. Companies limited by shares are common. There may be private company or public company.

Company Limited by Guarantee
Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound-up, the company is called a company limited by guarantee. The articles of such company must state the number of members with which the company is to be registered. Company limited by guarantee is not formed for the purpose of profit but for the promotion of art, science, culture, charity, sports, and commerce or for some similar purpose. They may or may not have share capital. The amount guaranteed by each member is in the nature of reserve capital.

Unlimited Company
Section 7 provides that any 7 or more persons (2 or more in case of private company may form an incorporated company with or without limited liability. A company without limited liability is known as unlimited company. In case of such company every member is liable for the debt of the company.

An unlimited company may or may not have a share capital. If it has a share capital it may be public company or private company. It must have its own articles of association. The articles must state the number of members which the company is to be registered. If the company has a share capital, the articles must also state the amount of share capital with which the company is to be registered.

Private Company:
According to section 3(1)(iii) a private company means a company which has a minimum paid-up capital of Rs. 1,00,000/ - or such higher paid-up capital may be in prescribed by its Articles. Other features are:

a.    Restricts the right to transfer its shares if any. The restriction is meant to preserve the private character of the company.
b.    Limits the number of its members to 50 not including its employee members (present or past
c.    Prohibits any invitation to the public subscribe for any shares in or debenture of the company.
d.    Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

The number of the debenture holders in a private company may not exceed 50. The private company cannot issue debenture to the public at large. Joint holders of shares are treated as a single member

Public Company:
A public company means, a company which is
a)     not a private company
b)    has a minimum paid up capital of Rs. 5,00,000/- or such higher paid-up capital as may be prescribed.
c)    Is a private company which is subsidiary of a company which is not a private company

Public company may be
i)    a listed public company or
ii)    an unlisted public company

A listed public company means a public company which any of its securities has listed in any recognized stock exchange. An unlisted public company is one whose securities are not listed in any recognized stock exchange.

Holding Company:
A company is known as the holding company of another company, if it has control over the other company. A company is deemed to be the holding of another company, only if, that other company is its subsidiary company.

Subsidiary Company
A company is known as a subsidiary company of another company, when control is exercised by another over the former, then such former company is known as a subsidiary company.

A company is deemed to a subsidiary company of another company in following 3 cases
i)    Me other company is the member of it and controls the composition of its Board of Directors.
ii)    The other company holds more than half in nominal value of its equity share capital, or
iii)    It is a subsidiary of another company, which is in turn a subsidiary of that over company.
    
Government Company:
It is a company which is not less than 51% of the paid up share capital is held by:
a)    Central Government, or
b)    Any State Government/ s, or
c)    Partly by the Central Government and partly by one or more State Governments.

e. g.-State Trading Corporation of India Ltd.
The subsidiary of Government Company is also a Government Company. A Government company is not a department of a state.

Foreign Company:
It means any company incorporated outside India, which has an established place of business in India. A company has an established place of business in India, if it has a specified or identifiable place at which it carries on business, such as office, store-house, or other premises with some visible sign or physical indication that the company has a concrete connection with particular premises.

Where a minimum 50 % of the paid capital of a foreign company is held by one or more citizens of India or land by one or more body corporate, incorporated in India, whether singly or jointly, such company shall company with such provisions as may be prescribed as if it were an Indian company.