Unit 2 company law. B.com

1. Subject: Commerce
Class: B.Com.
Year: III
Name of Paper: Company Law
Topic: Company Law
Sub Topic: Nature and Classification of Company
Key Words: Private company, One person Company, Govt.
Company, Dormant Company, Producer Company
Dr. Vandana Sonker
Assistant Professor
Faculty of Commerce
Banaras Hindu University
vandana.sonker @gmail.com

2. Meaning of Company
U/s Sec. 3. COMPANY ACT 1956,
Section 3 (1) (i) of the Act defines: “A company means a company formed and registered under this
Act or an existing company.”
That is, a company is an association of persons united for a common object.
It is a form of business organization where the funds of a large number of investors are managed by
a few persons for the purpose of earning profits which are shared by all the investors.
Thus company means an association of persons formed to carry on some business for profit or to
promote art, science, education or some charitable purpose.
A company, abbreviated as co., is a legal entity representing an association of people, whether natural,
legal or a mixture of both, with a specific objective. Company members share a common purpose
and unite to achieve specific, declared goals.

3. Incorporated association
Separate legal entity Common
seal Limited liability
Perpetual succession
Transferability of shares Separate
property
Capacity to sue and be sued
Artificial person
Separation of ownership from management
C
HARACTERISTICS
/
F
EATURES
OF
A
C
OMPANY
UNDER
C
OMPANIES
A
CT
2013

4. Types of Company

5. Classification of Company
1. On the basis of formation of company
 Statutory Company: A company which is incorporated by the means of special act
of the parliament or any state legislature. These are governed by acts creating them.
In such type of companies MOA& AOA is not required and annual reports are
presented in parliament.
Statutory Company: Chartered Company Registered Company

6. Cont..
 Chartered Company : Companies created by special charter by monarch (head
of states).the powers of chartered companies is defined by the charter (a document to
incorporate institution) under which it is incorporated. E.g.: east India company, bank of
England. Now it does not exist in India.
Registered Company: Companies registered under companies act 2013 or earlier
act are registered companies. Such companies cannot come into existence until
it is registered and certificate of Incorporation has been granted by registrar.

7. 2. On the basis of Liability of Members
Limited by share Limited by guarantee Unlimited liability
Limited by share: During the existence of the company or in the event of winding up, a member can
be called upon to pay the amount remaining unpaid on the shares subscribed by him. Such a
company is called company limited by shares.
Limited by guarantee: Each member promises to pay a fixed sum of money specified in the
Memorandum in the event of liquidation of the company for payment of the debts and liabilities of the
company [Sec 13(3)] This amount promised by him is called ‘Guarantee’.
Unlimited liability: Section 12 gives choice to the promoters to form a company with or without
limited liability. A company not having any limit on the liability of its members is called an ‘unlimited
company’

8. One Person
Company

9. Cont…
One Person Company Sec 2(62)
• OPC is incorporated as a private limited co.
• Minimum paid up capital 1 lakh
• No right to transferability of share
• The word OPC mention in bracket below the name of such co.

10. Definition of One Person Company
Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its
member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or
its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.
Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs
whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the
several advantages that OPCs offer.
Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its
member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or
its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.
Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs
whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the
several advantages that OPCs offer.

11. Privileges of One Person Companies
OPC enjoy the following privileges and exemptions under the Companies Act:
They do not have to hold annual general meetings.
Their financial statements need not include cash flow statements.
A company secretary is not required to sign annual returns; directors can also do so.
Provisions relating to independent directors do not apply to them.
Their articles can provide for additional grounds for vacation of a director’s office.
Several provisions relating to meetings and quorum do not apply to them.
They can pay more remuneration to directors than compared to other companies.

12. 4. On the basis of Control
Holding co.- According to sec 2(46) of the Companies Act 2013.
“holding company”, means a company of which such companies are
subsidiary company.
Subsidiary co.- According to sec 2(87) of the Companies Act a subsidiary
company, means a company in which the holding company”
(i) controls the composition of board of directors; or
(ii) Controls more than one-half of the total share capital

13. Cont..
Government Company: Sec. 2(45) of the
Companies Act defines a government company
as a company in which not less that 51% of the
paid-up share capital is held by:
(i) The Central Government; or
(ii)Any State Government or Government; or
(iii)Partly by the Central Government and
partly by one or more State Governments.

14. Producer Company
“Producer Company” means a body corporate having objects or activities specified in section 581B
and registered as Producer Company under the Companies Act, 1956.
A producer company is basically a body corporate registered as Producer Company under
Companies Act, 2013 and shall carry on or relate to any of following activities classified broadly: –
(a) Production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling,
export of *primary produce of the Members or import of goods or services for their benefit.
(b) Rendering technical services, consultancy services, training, education, research and development
and all other activities for the promotion of the interests of its Members;
(c) Generation, transmission and distribution of power, revitalization of land and water resources,
their use, conservation and communications relatable to primary produce
;
(d) Promoting mutual assistance, welfare measures, financial services, insurance of producers or their
primary produce;

15. Silent Condition for Producer Companies
Only persons engaged in an activity connected with, or related to, primary produce can
participate in the ownership.
The members have necessarily to be primary producer.
Termed as “Companies with Limited Liability” and the liability of the members will be
limited to the amount, if any, unpaid on the shares.
Name of the company shall end with the words “Producer Company Limited“.
On registration, the producer company shall become as if it is a Private Limited
Company for the purpose of application of law and administration of the company
However, it shall comply with the specific provisions of part IXA.
The limit of maximum number of members is not applicable to these Companies.

16. Dormant Company
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 two financial years;
(ii) “significant accounting transaction” means any transaction other than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.

17. Contd.
(2)The Registrar on consideration of the application shall allow the status of a dormant
company to the applicant and issue a certificate in such form as may be prescribed to that
effect.
(3) The Registrar shall maintain a register of dormant companies in such form as may be
prescribed.
(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.
(5) A dormant company shall have such minimum number of directors, file
such documents and pay such annual fee as may be prescribed to the Registrar to retain its
dormant status in the register and may become an active company on an application made
in this behalf accompanied by such documents and fee as may be prescribed.
(6) 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.

18. 5. On the basis of place of registration
Foreign Companies
• As per section 2(42) “foreign company” means any
company or body corporate in corporate outside India which
(a)Has place of business in India whether by itself or through
an agent and carries on business, physically or through
electronic mode, and
(b)Conduct any business activity India in any other manner For
example :- Samsung, Apple etc.
Indian Companies
• Indian company is a company which is registered in India. An
Indian is one which gets its self registered by following the
procedure enumerated in the companies act 2013 or previous
act.

19. Private Company
Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are
those companies whose articles of association restrict the transferability of shares and prevent the public at
large from subscribing to them. This is the basic criterion that differentiates private companies from public
companies.
The Section further says private companies can have a maximum of 200 members (except for One Person
Companies). This number does not include present and former employees who are also members. Moreover,
more than two persons who own shares jointly are treated as a single member.
Features of Private Companies
No minimum capital required
Minimum 2 and maximum 200 members
Transferability of shares restricted
“Private Limited”:
Privileges and exemptions

20. Privileges of Private Companies
The Companies Act has provided certain privileges and exemptions to private companies that public
companies do not possess. These privileges accord them greater freedom in conducting their affairs.
Here are some examples of them:
No need to prepare a report for annual general meetings.
Only 2 minimum directors required.
No need to appoint independent directors.
They can adopt additional grounds for the disqualification of directors and vacation of their office.
They can pay greater remuneration to their directors than compared to some other types of
companies.

21. Exemptions For Private Limited Companies
The exemptions available to private limited companies are:
Related Party Transactions
Kinds of Share Capital
Rights Issue Offer Period
Employee Stock Option Plan
Deposits from Members
Power to Purchase Own Securities
Loans to Directors
Filing of Board Resolutions
Eligibility of Auditors
Restriction on Board Powers
Disclosure of Directors' Interest
Appointment and Remuneration of Senior Management
Governance and Administration Related Provisions

22. Small companies as per Companies Act, 2013
Definition under the Companies Act, 2013
This is the new concept introduced under Companies Act, 2013 to give
certain advantages to small businesses in India.
Section 2 (85) of the Companies Act, 2013 defines Small Company as:
a) "small company" means a company, other than a public company
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
b)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.

23. Contd.
Provided that nothing in this Section 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.
* The word 'and' in the definition above have been inserted vide Ministry of
Corporate Affairs Order Dated 13th February, 2015. Earlier the word 'or' was
being used.

24. PRIVILEGES AND EXEMPTIONS FOR SMALL COMPANY
Small Companies enjoys a number of advantages under the Act.
Some of them are as follows:
 Board Meeting
Sufficient if it conducts 2 Board Meeting in a Year.
 Signing of Annual Return
It can be signed by a CS or by a Director of the Company.
 Rotation of Auditors
Not required.
 Cash Flow Statement
Not required to prepare.

25. Conversion of Companies
(Sec 14)

26. Conversion of a Public company into a Private
company
1. Special Resolution- For Authorizing the conversion, Alteration of
Article
2. Change in name- Adding the word ‘Pvt Ltd’
3. Approval of tribunal Sec 14 (1)- Approval and order of alteration of
article
4. Filing with registrar Sec 14 (2)- filing of approved and printed altered
article within fifteen days