(1) Private Company
According to Section 2(68), the Companies Act, 2013, a “Private Company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles-
(i) Restricts the right to transfer its shares;
(ii) Except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that-
(A) Persons who are in the employment of the company; and
(B) 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,
Shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
Section 3(1) (b) provides that “a company may be formed for
Any lawful purpose by two or more persons, where the company to be formed is to be a private company.” The 2013 Act introduces a change in the definition for a private company, inter-alia, the new requirement increases the limit of the number of members from 50 to 200.
According to Sec. 3, any two or more persons can associate and form a private company and the maximum number of members of a private company are to be limited to 200. In case of a public company, the minimum number of members has to be seven, but there is no limit to the maximum number of its members.
Moreover, the right to transfer shares has to be restricted in a private company.
Apart from that, in a private company there has to be prohibition on invitation to public to subscribe to any shares in, or debentures of, the company. It cannot, therefore, issue prospectus.
A private company must have Articles of Association, which must contain the matters mentioned above.
(2) Public Company
According to Section 2(71) of the 2013 Act, “public company” means a company which-
(a) Is not a private company;
(b) Has a minimum paid-up share capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles
It has been noted above that a company which restricts the right to transfer shares, restricts the membership of the company to the maximum of 200, and prohibits the public to subscribe to the shares or debentures of the company is a private company. When the Articles of a company do not contain any such restrictions then it would be a public company. Therefore, in the case of a public company there is no restriction as to the right of transfer of shares, its membership is not limited to 200, and it can invite public to subscribe to the shares or debentures of the company.
(3) One Person Company (OPC)
Section 3 has now introduced the formation of one more category of company that is one person company. The expert committee of Dr. J.J. Irani recommended this concept of OPC for the first time in 2005. This new concept provides a whole new bracket of opportunities for those who look forward to start their own ventures with a structure of organized business. It will give the next generation businessmen all benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc. all in the name of a separate legal entity.
Though the concept of One Person Company is defined in Section 2(62) of the Companies Act, 2013, it is important to note that Section 3 classifies OPC as a Private Company for all the legal purposes with only one member.
All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded.
(4) Company limited by shares
Section 2(22) defines company limited by shares as a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
A company limited by shares has a share capital, and the liability of each member is limited to the value of the shares held by him. If he has already paid part of the value, his liability remains to the extent of the unpaid amount. If shares are fully paid, the liability of the member in respect of such shares is no more there. Even if a company runs into huge losses, a shareholder cannot be called upon to pay more than the value of the shares agreed to be taken by him.
(5) Company limited by guarantee
A company may be limited by shares or guarantee. The Memorandum of a company limited by guarantee should state that the liability of its members is limited by guarantee. The Memorandum should also state the extent to which each member undertakes to be liable for payment of the debts and liabilities of the company in the event of the winding up of the company. When a company limited by guarantee is wound up, a member cannot be required to contribute more than the amount he had undertaken to contribute in the event of winding up.
A company limited by guarantee must have Articles of Association, which should be registered with the Memorandum
(6) Unlimited Company
Section 2(92) states that a company not having any limit on the liability of its members is called an unlimited company. It must have Articles of Association which must be registered with the Memorandum. The Articles of such a company must state the number of members with which the company is to be registered and, if the company has a share capital, the amount of share capital with which the company is to be registered.
In the case of an unlimited company, although the liability of its members is unlimited as that of partners of a partnership firm, but the company being a distinct legal entity from its members, a creditor cannot sue any member in respect of the debt due from the company. If such a company fails to satisfy the creditors, they can seek winding up and in that process, the members can be required to contribute for the payment of the debts and the winding up expenses.
(7) Government Company
According to Section 2(45), a Government Company means:
(a) Any company in which not less than 50% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and
(b) Includes company which is a subsidiary of a a Government Company.¹ For the purposes of this clause, the “paid up share capital” shall be construed as “total voting power”, where shares with differential voting rights have been issued.
(8) Holding Company and Subsidiary Company
When the relationship between any two companies is such that one of them is in a position to exercise a certain kind of control over the other, the controlling company is known as the ’holding company’ and the controlled one the ‘subsidiary company.’
According to Section 2(87), a company in which the holding company-
(i) Controls the composition of the Board of Directors; or
(ii) Exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies i.e. it is a subsidiary of the subsidiary company. For instance, if company B is subsidiary of company A, a subsidiary of company B will be deemed to be subsidiary of company A as well. This means that if company C is subsidiary of company B, company C also becomes subsidiary of company A. If company D is a subsidiary of company C, company D will be a subsidiary of company B, and consequently
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