CH 2 Kinds of Companies

Question 1

How can companies be classified on the basis of incorporation?

Answer 1

1. statutory AKA corporations - created by a special act of the legislature e.g RBI, SBI, LIC, concerned with public utlities like railways, gas/electricity. Provisions of CA56 apply if not inconsistent with provisions of their respective special acts
2. registered - formed and registered under CA56, most common

Question 2

how can companies be classfied on the basis of liability?

Answer 2

1. unlimited liability - limited by shares
2. unlimited liability - limited by guarantee
3. unlimited liability

Question 3

how can companies be classified on the basis of the number of its members?

Answer 3

1. private company
2. public company

must also consider private vs public companies; conversion of priv to pub or vice versa

Question 4

classification based on control

Answer 4

holding

subsidiary

Question 5

classification based on ownership

Answer 5

government

foreign

Question 6

explain companies limited by shares

Answer 6

liability limited to amount unpaid on shares, enforceable both during existence and winding up of company

exception: section 45 - no of members is below statutory minimum (explain this whole thing including time frame and exact liability)

Question 7

explain companies limited by guarantee

Answer 7

liability limited to fixed amount members undertake to contribute to the assets of the company upon it winding up

AoA must state number of members with which company is to be registered

these companies are formed to promote art, culture, science, sport etc instead of making profit

may or may not have share capital

Question 8

explain unlimited companies

Answer 8

• sec 12 provides that as long as statutory minimum no of members is met (explain this for both priv and pub), company can be incorporated with or without limited liability
• every member is liable for company debt
• may or may not have share capital and if it does it may be public or private
• must have own AoA

Question 9

6 characteristics of private companies - section 3

Answer 9

Carl Made Denise Some Pretty Queer Rope = deposits; AoA

sec 3 says priv company is one with:

1. min paid up capital of 100k (if existing on commencement of companies ammendment act 2000 with less, must increase within 2 years)
2. min 2 and max 200 members excluding present or past employee members (joint shareholders treated as single members, no max no. of debenture holders)
3. restricts right to transfer shares
4. does not invite public to subscribe for shares or debentures in company
5. does not accept deposits from people other than members, directors or their relatives
6. has is own AoA

Question 10

public companies wrt no of members

Answer 10

1. minimum paid up capital of 500K (if existing on commencement of C(A)A with less, must increase within 2 years)
2. private company which is a subsidiary of public company

Question 11

difference between public and private company

Answer 11

1. min capital - 100k for priv, 500k for public
2. min and max members - 2 and 200 for priv; 7 and N/A for public
3. no. of directors - 2 for private (1 if one-person company); 3 for public
4. appointment of directors - public must fire consent with registrar to act as directors or sign undertaking for their qualification shares; not for priv
5. invitation to subscribe for and transferability shares and debentures - priv is restricted to do this by its Articles; public can do both freely
6. special privileges - none for public
7. quorum - 2 for private. for public: 5 if fewer than 1k members, 15 if fewer than 5k and 30 if more than 5k
8. managerial remuneration - priv has no reg; pub can’t exceed 11% of net profits

minimum number of members required to be present at a meeting to validat

Carl Made Denise Some Pretty Queer Ropes

Capital; Members; Directors (number and appointment); Shares and debentures; Privileges; Quorom; Remuneration

Question 12

special privileges of a private company

Answer 12

1. number of members and directors
2. allot shares before minimum subscription is paid
3. allot shares without issuing prospectus or statement in lieu of
4. when public issues new shares, after 2 years from formation or 1 year from first allotment of shares (whichever comes first), must first offer to existing SH pro rata. NOT FOR PUBLIC
5. issue any kind of share cap with any voting rights
6. commence business immediately after incorporating
7. need not keep index of members
8. statutory meetings and reports not necessary
9. even one member present in person/by proxy with the right to vote may demand poll if max 7 members present in person. if more than 7, 2 are needed
10. managerial remuneration limits
11. less stringent rules regarding appointment directors (file consent with registrar/undertaking)

Question 13

how does a private company become public?

Answer 13

1. conversion by default - in complying with essential requirements of private company, provisions of CA apply as though it were a private company unless company law board sees default as accidental
2. conversion by choice/volition - becomes public on the date it alters Articles to remove provisions that make it private. Must then file prospectus or statement with Registrar within 30 days as well as:

a) copy of resolution altering articles within 30 days
b) increase membership and directors to minimum (which is….) if below
c) alter regulations in articles inconsistent with those of public co

Question 14

outline the process of conversion from a public to a private company

Answer 14

• pass special resolution to change articles to include conditions in section 3 that makes a company private
• alteration will only have effect when approved by central govt
• printed copy of altered articles must be filed with registrar within 1 month of date of govt approval

Question 15

how can companies be classified on the basis of control?

Answer 15

1. holding company - has control over another company that is subsidiary to it
2. subsidiary company - control is exercised over it by a holding company in one of 3 ways:

a) H controls composition of all or majority of BOD of S
b) H holds more than half of nominal value of equity share capital of S
c) if S is subsidiary of H1 which is the subsidiary of H, S is also a subsidiary of H

Question 16

classification based on ownership

Answer 16

• govt
• non-govt
• foreign company

Question 17

govt company

Answer 17

not less than 51% of paid of share capital is held by

1) central govt
2) any state govt(s)
3) party by central and partly by state govt(s)

subsidiary of govt co is also govt co

Question 18

annual reports on govt companies

Answer 18

1. if CG is member of govt co, annual report must be prepared within 3 months of AGM and presented to both Houses of Parliament with copy of audit report
2. if CG and SG are both members, SG requires copy of AR and audit report to be presented to the House or both Houses of State Legislature
3. if CG is not member, SG(s) will require AR and audit to be presened to the House or both Houses of State Legislature

provisions of sec 394 and 395 apply to govt company in liquidation

Question 19

appointment of auditor and audit reports

Answer 19

done by comptroller and auditor-general

they also direct manner in which accounts should be audited and can conduct supplementary or test audits

provisions of sec 143 apply here

Question 20

provisions of the companies act to not apply to govt companies

Answer 20

CG may notify in the Official Gazette that certain provisions of the CA may

a) not apply to any govt co
b) apply with certain exceptions, modifications and adaptations

Question 21

define foreign company

Answer 21

companies incorporated outside of india but have a place of business in india

if at least 50% of paid-up share capital of a foreign company, whether equity, preference or both, is held by citizen(s) of India or one or more company incorporated in India, it must comply with the provisions of the CA as though it were a company incorporated in India

Question 22

documents to be delivered to registrar by foreign companies

Answer 22

within 30 days of establishing place of business in India

1. certified copy of memorandum and articles in English or a certified translation in English
2. full address of registered or principal office AND primary place of business in India
3. list of directors and secretary of company
4. name(s) and address(es) of people residents of India authorised to accept any documents on behalf of company
5. details of opening and closing of place of business in India on earlier occassion(s)
6. declaration that no director of company or the authorised rep in India has been debarred from formation of companies in India or abroad

if any alterations, must register these with Registrar within 30 days

Question 23

display of name of foreign company

Answer 23

1. company name and country of incorporation outside every place of business in India the in legible English and local language
2. name of the company and country of incorporation in legible English on all business letterheads and other official notices or publications
3. if limited liability company, must state this fact outside every office/place of business in english+local language and in all business letters/publications in english