Assignments on       TYPES OF COMPANIES                submitted by               Job Thomas          Roll No. 8, Semester...
TYPES OF COMPANIESIntroductionA company is a group of individuals who come together for a common purpose, mainlyprofit mak...
TYPES OF COMPANIES                                           Company  Basis of Incorporation              Basis of Liabili...
TYPES OF COMPANIES                                   Proposed company        Private company                              ...
TYPES OF COMPANIES                                           Company            Incorporated company                      ...
TYPES OF COMPANIESA public company is defined as a company which is not a private company. Thefollowing conditions apply o...
TYPES OF COMPANIES   •   Export/Import of goods   •   Rendering professional or consultancy services   •    Carrying out r...
TYPES OF COMPANIESLimited Liability Partnership (LLP)A law to allow "Limited Liability Partnership" (LLP) in India has bee...
Requirements for a Private Limited Company  1. A Registered Business Name: This must be followed by the word ‘Limited or ‘...
7. Certificate of Incorporation: This is the document, which the registrar of companies      issues to you once he has app...
2. Articles of Association;3. a declaration signed by a person named in the articles of the proposed company as adirector,...
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Business Law


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Dr. Job Thomas
Reader in Civil Engineering, School of Engineering
Cochin University of Science and Technology
Cochin -22, email:

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Business Law

  1. 1. Assignments on TYPES OF COMPANIES submitted by Job Thomas Roll No. 8, Semester - 4 MBA (PT) 2012 submitted to Prof. (Dr.) M.C. Valsan for the subject SMP 2404 BUSINESS LAW SCHOOL OF MANAGEMENT STUDIESCochin University of Science and Technology Cochin, Kerala PIN 682022 April 2012
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  3. 3. TYPES OF COMPANIESIntroductionA company is a group of individuals who come together for a common purpose, mainlyprofit making and revenue sharing. The working of a business entity in India is governedby the Companies Act, 1956. There are various types of business entities defined by theIndian legal system, such as corporations, sole traders, cooperatives and partnerships.Definition of a company The term company means a group of people working together for some common objector objects. The purpose for such group to associate are different but the term company isnormally set aside for those linked with economic purpose means to work for the profitmotive. The term company as defined by Lord Justice Lindley as follows: "By a companyis meant an association of many persons who contribute money or money worth to acommon stock and employ it in some trade or business, and who share the profit and loss(as the case may be) arising there from, The common stock so contributed is denoted inmoney and is the capital of the company. The persons who contribute it, or to whom itbelongs, are called members. The proportion of capital to which each member is entitledis his share. Shares are always transferable although the right to transfer them is oftenmore or less restricted."A company is a corporate and legal entity. It is an artificial person created by lawIt has a common seal and perpetual succession.Main features of a companyA Companies Act has special features which differentiate it from the other forms oforganizations. The main characteristics of a company are as:1) It is the creation of Law.2) It has a separate Legal Entity:3) It has a limited liability:4) It has a perpetual succession:5) Transferability of Shares:6) It has a common seal7) It may sue or be sued under the Company Law.Classification of companiesThe companies are broadly classified on different basis given by Companies Act, 1956.The ompanies are classified on the based on incorporation, liability and number of mebers 3
  4. 4. TYPES OF COMPANIES Company Basis of Incorporation Basis of Liability Basis of number of members * Statutory company * Private company * Registered company * Public company * Companies with limited liability * Companies with unlimited liability Fig 1. Classification on various basisOn the basis of Incorporation: • Statutory Companies: These companies are formed by particular act of government. Example: Reserved bank of India. • Registered Companies: These are companies which are registered under the Companies Act, 1956. For obtaining certificate of incorporation from registrar of comapines, following documents must be submitted 1. Memorandum of association (constittion and objectives of company) 2. Article of association (rules and regulation of company) 3. Letter of authority to person carrying out the corrections 4. Declaration by promotor directors 5. Form 32 for directors 6. Form 18 for registered office address 7. DD in favour of Registrar of companies towards registration feeOn the basis of liability: • Companies with limited liability: These can be subdivided as companies limited by shares and companies limited by guarantee. • Companies with unlimited liability: In such companies, every member is accountable for debt of the company.On the basis of number of members: • A private company • A public companyThe details of private and public company are given below 4
  5. 5. TYPES OF COMPANIES Proposed company Private company Public company Capital raised from private group Capital raised from public Minimum share holders required = 2 Minimum share holders required = 7 Minimum share directors required = 2 Minimum share directors required = 3 Minimum paid up capital – INR 1 lakh Minimum paid up capital – INR 5 lakh Maximum number of share holders- 50 Maximum number of share holders- Nil Eg. Jet airways Eg. Indian oil corporation Fig 2. Classification based on number of membersIncorporated companyIncoppration is the process of forming a new corporation. A corporation is a legal entitythat is effectively recognised as a person under the law. The company obtains certificateof incorporation from registrar of companies. The advanges of incorpotation of comapanyare:- • Tax exemptions available to the incorporated company set up in Special Economic Zone; • Tax incentives available to incorporated IT companies; • India has got double taxation treaties with many countries, which is beneficial to incorporated companies having outlet/plant outside country.Unincorpotaed companyUnincorporated companies are formed with intention of establishing large partnerships.The liability of the members is unlimited. This type of company persists even after thedeath or insolvency of any member. The number of members is restricted up to 10 for thebanking sector and up to 20 for other industries. 5
  6. 6. TYPES OF COMPANIES Company Incorporated company Unincorporated company Public companies limited by shares. Partnership Firms Public companies limited by guarantee. Public unlimited companies. Private companies limited by shares. Private companies limited by guarantee. Private unlimited companies. Foreign companies. Liaison office Project office Branch office Government companies Fig 3. Classification based on incorporationPrivate Limited CompanyA private company is a company which has the following characteristics: • shareholders’ right to transfer shares is restricted; • the number of shareholders is limited to fifty; and • an invitation to the public to subscribe to any shares or debentures is prohibited.A Private Limited Company is the most popular form of business entity used for ForeignInvestors in India, including USA investors in India. It takes some time to incorporate inIndia as there are various steps required in forming a private limited company in India.There are various steps required to establish a business in India, before and afterincorporation, as mentioned hereinafter.Public Limited Company 6
  7. 7. TYPES OF COMPANIESA public company is defined as a company which is not a private company. Thefollowing conditions apply only to a public company: • It must have at least seven shareholders. • A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called "trading certificate". • It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business. • A public company is required to have at least three directors. • It must hold statutory meetings and obtain government approval for the appointment of the management.There are several other provisions contained in the Companies Act 1956 which areapplicable only to public companies and should be consulted.Foreign CompanyA company incorporated outside the region of the nation but has place of business in thenation is called foreign company.Liaison Office/Representative OfficeA Liaison Office could be established with the approval of the government of India. Therole of Liaison Office is limited to collection of information, promotion ofexports/imports and facilitates technical/financial collaborations Liaison office cannotundertake any commercial activity directly or indirectly.Project OfficeForeign companies planning to execute specific projects in India can set up temporaryproject/site offices in India for carrying out activities only relating to that project. TheGovernment of India has now granted general permission to foreign entities to establishproject offices subject to specified conditions.Branch OfficeForeign companies engaged in manufacturing and trading activities abroad areallowed to set up Branch Offices in India for the following purposes: 7
  8. 8. TYPES OF COMPANIES • Export/Import of goods • Rendering professional or consultancy services • Carrying out research work, in which the parent company is engaged. • Promoting technical or financial collaborations between Indian companies and parent or overseas group company. • Representing the parent company in India and acting as buying/selling agents in India. • Rendering services in Information Technology and development of software in India. • Rendering technical support to the products supplied by the parent/ group companies. • Foreign airline/shipping Company.A branch office is not allowed to carry out manufacturing activities on its own but ispermitted to subcontract these to an Indian manufacturer. Branch Offices establishedwith the approval of RBI, may remit outside India profit of the branch, net of applicableIndian taxes and subject to RBI guidelines Permission for setting up branch offices isgranted by the Reserve Bank of India (RBI).Government CompanyThe companies act defines the government company in which not less than the 50 percentof the paid-up share capital is held by central government or state government or partlyby government and partly by one.Investment companyA company, whose principal business is acquisition of shares debentures and othersecurities.Holding company and subsidiary companyThe company which hold a half of the nominal value of share capital of another companyor control composition of board of directors is called holding company. The companywhose half of the nominal value of share capital held by another company is calledsubsidiary company. 8
  9. 9. TYPES OF COMPANIESLimited Liability Partnership (LLP)A law to allow "Limited Liability Partnership" (LLP) in India has been enacted by theParliament of India recently. (Limited Liability Partnership (LLP) Act of 2008).LLP is an alternative corporate business entity that provides the benefits of limitedliability of a company but allows its members the flexibility of organizing their internalmanagement on the basis of a mutually-arrived agreement, as is the case in a partnershipfirm.This format would be quite useful for small and medium enterprises in general and for theenterprises in services sector in particular, including professionals and knowledge basedenterprises.As proposed in the Bill, LLP shall be a body corporate and a legal entity separate from itspartners. It will have perpetual succession. While the LLP will be a separate legal entity,liable to the full extent of its assets, the liability of the partners would be limited to theiragreed contribution in the LLP.Further, no partner would be liable on account of the independent or unauthorized actionsof other partners, thus allowing individual partners to be shielded from joint liabilitycreated by another partner’s wrongful business decisions or misconduct. 9
  10. 10. Requirements for a Private Limited Company 1. A Registered Business Name: This must be followed by the word ‘Limited or ‘Ltd. The Companies Registration Office exercises some control over the choice of name, it cannot be identical (or very similar to) the name of an existing company. It wont be considered if it is offensive or illegal and the use of certain words in a company (for example, `Institute, `National) can only be used in certain circumstances. The company name must be displayed in a conspicuous place at every office, or other premises where the company carries out business. 2. A Registered Office: This need not necessarily be the same address as the business is conducted from. Quite frequently the address used for the registered office is that of the firms solicitor or accountant. This is the address, through, where all official correspondence will go. 3. Shareholders: There must be a minimum of two shareholders (also described as `members or `subscribers). A private company can have up to fifty shareholders. 4. Share Capital: The company must be formed with a stated, nominal share capital divided into shares of fixed amounts. Small companies are frequently formed with a nominal share capital of Rs.100. 5. Memorandum of Association: The memorandum is the companys charter. It states the companys name; the situation of its registered office; its share capital; the fact that liability is limited and, most importantly, the object for which the company has been formed. In theory, the company can only operate in the areas mentioned in the objects clause but in practice the clause is drawn to cover as wide an area as possible, and anyway a 75 per cent majority of the members of the company can change the objects whenever they like. Nevertheless, it is worth bearing in mind that directors of the company will incur personal liability if the company engages in a type of business which is not authorized by the objects clause. The memorandum must be signed by at least three shareholders. 6. Articles of Association: The document contains the internal regulations of the company, the relationship of the company to its shareholders and the relationship between the individual shareholders. Many companies dont bother to draw up their own articles but adopt (sometimes with some modifications) articles set out in the Companies Act. 10
  11. 11. 7. Certificate of Incorporation: This is the document, which the registrar of companies issues to you once he has approved your choice of name and your memorandum. When you receive this document your company legally exists and is ready to trade. 8. Auditors: Every company must appoint a qualified auditor. The auditors duty is to report to the treasurer whether or not the books of the company have been properly kept, and that the balance sheet and profit and loss account presents (or doesnt present) a true and fair view of the companys affairs and complies with the Companies Act. Auditors are appointed or re-appointed at general meetings at which annual accounts are presented, and they hold office from the conclusion of the meeting until the next general meeting. 9. Accounts: The Companies Act lays down strict rules on accounting. Every company must maintain a set of records, which show the financial position at any one time with reasonable accuracy. The accounts comprise a profit and loss account and balance sheet with the auditors and directors reports appended. A new companys accounting reference period begins on its incorporation and runs until the following 31st March - unless the company notifies the registrar of companies otherwise. Within ten months of the end of an accounting reference period, an audited set of accounts must be laid before the shareholders at a general meeting and a set delivered to the registrar of companies. 10. Registers, etc.: In addition to the accounts books, companies are required to have: a register of members and share ledger; a register of directors and secretaries; a register of share transfers; a register of charges; a register of debenture holders; a book can be purchased to hold all of the above. This will be provided automatically if you buy a running concern. 11. Company Seal: All companies must have an engraved seal. This must be impressed on share certificates and must be used whenever the company has to execute a deed. Again, this is included in the ready-made company package.Corporate Documents & Registration of a CompanyFor incorporating a company in India, an application for registration should be submitted tothe registrar of companies with the following documents:1. Memorandum of Association; 11
  12. 12. 2. Articles of Association;3. a declaration signed by a person named in the articles of the proposed company as adirector, manager, or secretary of the company, or by an advocate of the Supreme Court orHigh Court, or by an attorney entitled to appear before the High Court, or by a charteredaccountant practicing in India stating that all the requirements of the Companies Act 1956and the applicable rules with respect to the registration and other matters have been compliedwith;4. a list of persons who have consented to act as directors of the company.5. if the proposed company is a public company, consent of very person prepared to act as adirector must be submitted in a prescribed form;6. information about directors, managing directors and managers and secretary must besubmitted in a prescribed form;7. information about the registered office in a prescribed form;8. power of attorney in favor of one of the promoters or any other person, authorizing him/herto make corrections in the documents submitted to the registrar of the companies, if itbecomes necessary; and9. applicable registration fee payable to the registrar of the companies. 12