Ajay wants to start a private consulting company. To form a private company, Ajay would need at least one other person, for a minimum of two members. The company must also have a minimum paid-up capital of Rs. 1 lakh. A private company restricts share transfers and limits membership to 50 people, excluding employees. It prohibits public offers of shares or debentures and deposits from non-members. This structure allows Ajay to control ownership while fulfilling the legal requirements for a private company.

1. Module :2
COMPANIES ACT 1956
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2. What is a company
• A company is an artificial person created by
law.
• A company means a group of persons
associated together for the attainment of a
common end, social or economic.
• The company means a company formed and
registered under this act or an existing
company
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3. Definition of a company
• According to Sec (1), “A company formed and registered
under the act”.
• According to Sec (3) of the act, “on incorporation a company
becomes a body corporate or a corporation with a perpetual
succession and a common seal.”
• According to N.D.Kapoor,” IT is a voluntary association of
persons formed for some common purpose, with capital
divisible into parts, known as shares, and with a limited
liability. It is a creation of the law and is sometimes known as
an artificial person with a perpetual succession and a
common seal. IT exists only in the eyes of the law, I.e., it is
regarded by the law as person, just as a human being. But it
has no physical existence.”
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4. CHARACTERISTICS OF A COMPNAY
• Separate legal entity
• Limited liability
• Perceptual succession
• Common seal
• Transferability of shares
• Separate property
• Capacity to sue
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5. Types of Company
1. Private and public company
2. Limited and unlimited company
3. Holding and subsidiary company
4. Government company
5. Foreign company
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6. Private Company [Section 3(1)(iii)]
• A private company means a company
which has a minimum paid up capital of
one lakh rupees or such higher paid-up
capital as may be prescribed and by its
articles :
(a) restricts the right to transfer its shares,
if any;
(b) limits the number of its members to 50,
(not including its employee members)
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7. Private Company …contd.
(i) persons who are in the employment of
the company, and
(ii) persons who, having been formerly in the
employment of the company, were
members of the company while in that
employment and have continued to be
members after the employment ceased;
(c) prohibits invitation to the public to
subscribe for any shares in or debentures
of, the company; and
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8. Private Company …contd.
(d) prohibits any invitation or acceptance of
deposits from persons other than its
members, directors or their relatives.
• Where two or more persons hold one or
more shares in a company jointly, they shall,
for the purposes of membership, be treated
as a single member.
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9. Public Company [Section 3(1)(iv)]
• A public company means a company which:
(a) is not a private company [In other words, it
should not have the restrictions of Section
3(1)(iii) in its articles ];
(b) has a minimum paid-up capital of five lakh
rupees or such higher paid-up capital, as may be
prescribed; and
(c) By its articles does not restricts the right to
transfer its share ,if any;
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10. Public Company …..con
d) By its articles does not limits the
number of its member
(e) By its articles does not prohibits invitation to
the public to subscribe for any shares or
debentures of the company
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11. Limited and Unlimited Companies
• A limited company is one wherein the liability
of its members is limited any future be sub-
classified as below
1. A company limited by shares
2. A company limited by guarantee
3. Unlimited companies
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12. Subsidiary companies
According to sec 4(7), a company is known as subsidiary
company of another company when control is exercised by the
later company
(a) it controls the composition of its board of directors;
(b) A company holding majority of shares
For example:- if a company B is subsidiary of the company A, and
Company C is subsidiary of the company B, therefore
company C is also subsidiary of the company A
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13. Holding company
• According to sec 4(4), a company is known as
holding company of another company if it has
control over that other company
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14. Government company
• A Government company is one in which
either the Central Government or the
State Governments taken together hold
not less than 51% of its paid-up capital.
The term further includes a subsidiary of
such a Government company.
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15. 1. A Government company may be
incorporated as a private company or a
public company.
2. A Government company is governed by the
provisions of the Companies Act unless
exempted by the Central Government under
powers conferred under section 620.
3. The Central Government has exempted the
Government companies from most of the
provisions of the Companies Act.
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16. A foreign company means a company
incorporated outside India but having a place of
business in India. ( sec 591(1))
1. A foreign company is required to furnish to the Registrar
documents specified in section 592. Besides, it is subjected
to certain obligations spelt out under sections 594, 595,600,
603-608.
2. Where foreign companies in which more than 50% the paid-
up share capital is in Indian hands, section 591(2) provides
that it should be, for its business in India, treated as a Indian
company.
3. A foreign company if it ceases to carry on business in India,
may be wound up as an unregistered company.
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17. KINDS OF COMPANIES
• BASED ON “MEMBERSHIP”
 Private Company
-Min no. of members: 2
-Max no. of members: 50
-Restricts right to transfer its shares
-Prohibits public issue of shares or debentures
 Public Company
-Min no. of members: 7
-Max no. of members: Unlimited
-Doesn’t restrict right to transfer its shares
-Doesn’t Prohibit public issue of shares or
debentures 17

18. Case
• Ajay wants to set up a company to run a consulting
business.
– a. Can he form a company alone? How many more
people would he need to form a private company?
– b. What is the minimum amount of money the
founding members would need to raise to form a
private company?
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19. KINDS OF COMPANIES ( contd…)
• BASED ON “INCORPORATION”
 Chartered companies -companies which are
incorporated under a special charter granted by
the king or queen in exercise of royal power.
-East India Company(1600)
 Statutory Companies -which are created by
special act of parliament or state legislature at
central or state govt. level
-Reserve Bank of India
 Registered Companies – are companies which
are registered under the co.’s act of 1956
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20. KINDS OF COMPANIES ( contd…)
• BASED ON “LIABILITIES”
 Co.’s limited by SHARES –companies in
which the liability of its members is limited
to the extent of the amount unpaid on the
shares held by a particular member.
 Co.’s limited by GUARENTEE -the liability of
members is limited to a fixed amount which
members undertake to contribute to the
assets of the company in case of its winding
up.
 Unlimited Co.’s –wherein members are liable
for the debts of the company irrespective
of their interest in the company
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21. • BASED ON “CONTROL”
Holding Company -51% of the share capital
 Subsidiary Company –less that 51%
 Govt. Companies – MNTC, ONGC
 Foreign Companies – IBM, MICROSOFT
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