University Of Mumbai

Nirmala Memorial Foundation College of Commerce & Science

Class: F.Y.B.M.S

Div: B

Semester: 1st (2010-11)

Internal Assignment: Types of Company

Date: _______
Signature: _____________

1
TYPES OF COMPANIES

2
 Group Members

Name Roll no:

PRIYANKA JADHAV 25

DEEPAK 26

KAVITA SHAH
27

SOFNIL KAROVALIYA
28

VIDIT PANCHAL
29

AADIL KHAN 30

3
 Acknowledgement

I owe a great many thanks to a great many people who helped and
supported me during the writing of this book

my deepest than to Lecturer, __________________ the guide of the

project for guiding and correcting various documents of mine with
attention and care. He has taken pain to go through the project and
make with attention and care. He has taken pain to go through the
project and make necessary correction as and when needed

I express my thanks to the Principle of Nirmala Memorial Foundation

College of Science & Commerce, for extending his support.

I would also thanks my Institution and my Faculty without whom this

project would have been a distant reality. I also extend my hereafter
thanks to family and well wishers.

4
Contents Page
No
Introduction
……………………………………………………………………………………………………………………
……………………….6
Distinction between Company and Partnership
……………………………………………………………………………………….8
Types of Company
……………………………………………………………………………………………………………………
……………..10
Conversion of Private limited company into Public limited
company……………………………………………………….14
Conversion of a Public Company into a Private Company
………………………………………………………………………..17
Contents Page No.....................................................................................................5

Bibliography.....................................................................................................................20

5
 Introduction

The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or together" and
'Pains' meaning "bread". Originally, it referred to a group of persons who took their meals together. A
company is nothing but a group of persons who have come together or who have contributed money
for some common person and who have incorporated themselves into a distinct legal entity in the form
of a company for that purpose. Under Halsbury’s Laws of England, the term "company" has been
defined as a collection of many individuals united into one body under special domination, having
perpetual succession under an artificial form and vested by the policies of law with the capacity of
acting in several respect as an individual, particularly for taking and granting of property, for
contracting obligation and for suing and being sued, for enjoying privileges and immunities in
common and exercising a variety of political rights, more or less extensive, according to the design of
its institution or the powers upon it, either at the time of its creation or at any subsequent period of its
existence. However, the Supreme Court of India has held in the case of State Trading Corporation of
India v/s CTO that a company cannot have the status of a citizen under the Constitution of India.

A company as an entity has several distinct features which together make it a unique organization. The
following are the defining characteristics of a company:-

Separate Legal Entity:

On incorporation under law, a company becomes a separate legal entity as compared to its members.
The company is different and distinct from its members in law. It has its own name and its own seal,
its assets and liabilities are separate and distinct from those of its members. It is capable of owning
property, incurring debt, and borrowing money, having a bank account, employing people, entering
into contracts and suing and being sued separately.

Limited Liability:
The liability of the members of the company is limited to contribution to the assets of the company up
to the face value of shares held by him. A member is liable to pay only the uncalled money due on
shares held by him when called upon to pay and nothing more, even if liabilities of the company far
exceeds its assets. On the other hand, partners of a partnership firm have unlimited liability i.e. if the
assets of the firm are not adequate to pay the liabilities of the firm, the creditors can force the partners
to make good the deficit from their personal assets. This cannot be done in case of a company once the
members have paid all their dues towards the shares held by them in the company.

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Perpetual Succession:
A company does not die or cease to exist unless it is specifically wound up or the task for which it was
formed has been completed. Membership of a company may keep on changing from time to time but
that does not affect life of the company. Death or insolvency of member does not affect the existence
of the company.

Separate Property:
A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be
owner of the company's property during the existence of the company.

Transferability of Shares:
Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is
permanently or necessarily wedded to a company. When a member transfers his shares to another
person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor
in respect of those shares.

Common Seal:
A company is an artificial person and does not have a physical presence. Therefore, it acts through its
Board of Directors for carrying out its activities and entering into various agreements. Such contracts
must be under the seal of the company. The common seal is the official signature of the company. The
name of the company must be engraved on the common seal. Any document not bearing the seal of the
company may not be accepted as authentic and may not have any legal force.

Capacity to sue and being sued:

A company can sue or be sued in its own name as distinct from its members.

Separate Management:
A company is administered and managed by its managerial personnel i.e. the Board of Directors. The
shareholders are simply the holders of the shares in the company and need not be necessarily the
managers of the company.

One Share-One Vote:

The principle of voting in a company is one share-one vote. I.e. if a person has 10 shares, he has 10
votes in the company. This is in direct contrast to the voting principle of a co-operative society where
the "One Member - One Vote" principle applies i.e. irrespective of the number of shares held, one
member has only one vote.

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Distinction between Company and Partnership:
• A Partnership firm is sum total of persons who have come together to share the profits of the
business carried on by them or any of them. It does not have a separate legal entity. A
Company is association of persons who have come together for a specific purpose. The
company has a separate legal entity as soon as it is incorporated under law.
• Liability of the partners is unlimited. However, the liability of shareholders of a limited
company is limited to the extent of unpaid share or to the tune of the unpaid amount guaranteed
by the shareholder.
• Property of the firm belongs to the partners and they are collectively entitled to it. In case of a
company, the property belongs to the company and not to its members.
• A partner cannot transfer his shares in the partnership firm without the consent of all other
partners. In case of a company, shares may be transferred without the permission of the other
members, in absence of provision to contrary in articles of association of the company.
• In case of partnership, the number of members must not exceed 20 in case of banking business
and 10 in other businesses. A Public company may have as many members as it desires subject
to a minimum of 7 members. A Private company cannot have more than 50 members.
• There must be at least 2 members in order to form a partnership firm. The minimum number of
members necessary for a public limited company is seven and two for a private limited
company.
• In case of a partnership, 100 % consensus is required for any decision. In case of a company,
decision of the majority prevails.
• On the death of any partner, the partnership is dissolved unless there is provision to the
contrary. On the death of the shareholder the company' existence does not get terminated.

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Illegal Association:
• Under the Companies Act, 1956, not more than 10 persons can come together for carrying on
any banking business and not more than 20 persons can come together for carrying on any
other of business, unless the association is registered under the Companies Act or any other
Indian law. Any association which does not comply with the above norms is an illegal
association. Therefore, a partnership of more 10 or 20 members, as the case may be, is an
illegal association unless the registered under the Companies Act or any other Indian law.
• However, this provision does not apply in the following cases :-
• A Joint Hindu Family business comprising of family members only. But where two or more
Joint Hindu families come together for business through partnership, the total number of
members cannot exceed 10 or 20 as the case may be, but in computing the number of persons,
minor members of such family will be excluded.
• Any association of charitable, religious, scientific trust or organization which is not formed
with a profit motive
• Foreign companies.
When the number of members exceeds the prescribed maximum, members must register it
under Companies Act or any other Indian law.

Consequences of non-registration:
An illegal association is not recognized by law. An illegal association cannot enter into any contract,
cannot sue any members or any outsider, and cannot be sued by any members or outsiders for any of
its debts. The members of the illegal association are personally for the obligations of the illegal
association. A member may be liable to a fine of Rs. 1000. Any member of an illegal association
cannot sue another member in respect of any matter connected with the association.

Minimum number of members:

A public company must have at least 7 members whereas a private company may have only 2
members. If the number of members falls below the statutory minimum and the company carries on its
business beyond a period of six months after the number has so fallen, the reduction of number of
members below the legal minimum is a ground for the winding up of the company.

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 Types of Companies

Royal charter or chartered companies: These companies are incorporated under special royal
charter issued by the king or queen. Their powers and actions are governed by the charter for ex. East
India Company, bank of England, etc. Such companies are treated as foreign companies in India.

Statutory companies: These companies are formed under the special statutory act of the parliament
or state legislature, ex. RBI, SBI, Indian financial corporation of India, life insurance Corporation of
India, state trading corporation, etc. These companies are governed by the act of parliament or by state
legislature. These companies are mostly public undertaking and are formed with the main object of
public utilities and not for profits. Any change in the working of these companies if its provisions are
not inconsistent with the provision of the special acts under which they are framed.

Public Company: A Public Limited Company is a Company limited by shares in which there is no
restriction on the maximum number of shareholders, transfer of shares and acceptance of public
deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares
face value and the premium thereon in respect of the shares held by him. However, the liability of a
Director / Manager of such a Company can at times be unlimited. The minimum number of
shareholders is 7.

Private Company: A Private Limited Company is a Company limited by shares in which there can
be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or
debentures, cannot make or accept deposits from Public and there are restriction on the transfer of
shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face
value and the premium thereon in respect of the shares held by him. However, the liability of a
Director / Manager of such a Company can at times be unlimited. Restricts the right of members to
transfer its shares. Limits the number of its members to fifty. In determining this number of 50,
employee-members and ex-employee members are not to be considered. Prohibits an invitation to the
public to subscribe to any shares or debentures of the company. If a private company contravenes any
of the aforesaid three provisions, it ceases to be private company and loses all the exemptions and
privileges which a private company is entitled.

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Following are some of the privileges and exemptions of a private limited company:-
• The minimum number of members in a private company can be two only as against seven in a
public company.
• Provisions regarding minimum subscription before allotment of shares do not apply to a
private company.
• A private company need not file a prospectus or a statement in lieu of prospectus with the
registrar.
• Further shares can be issued without passing special resolution or obtaining Central
Government’s approval and need not be offered to the existing members.
• Private company may issue share capital of such kinds, in such forms and with such voting
rights as it may think fit. However, its paid-up capital shall not be less than rupees one lac.
• Private company can commence business immediately on incorporation.
• Private company need not keep an index of members.
• Private company need not hold statutory meeting or file statutory report.
• Provisions as to overall maximum managerial remuneration and to directors, do not apply, to a
private company.
• Minimum number of directors is only two in a private company.
• Provisions as to proportion of directors liable to retire by rotations do not apply to a private
company.
• Director’s consent to act as such is not required.
• Restrictions on appointment of directors as regards their consent and holding qualification
shares do not apply to a private company.
• Government approval to appointment or amendment of provisions relating to managing or
whole-time or non-rotational directors is not required.
• Director’s contract to take up qualification shares need not be filed with the Registrar of
companies.
• Provisions regarding loans to directors do not apply.
• Provisions regarding interested directors not to participate or vote in Board’s proceedings do
not director do not apply.
• Restrictions on advancing loans to other companies do not apply.

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Companies deemed to be public limited company:
A private company will be treated as a deemed public limited company in any of the following
circumstances:-
• Where at least 25% of the paid up share capital of a private company is held by one or more
bodies corporate, the private company shall automatically become the public company on and
from the date on which the aforesaid percentage is so held.
• Where the annual average turnover of the private company during the period of three
consecutive financial years is not less than Rs 25 crores, the private company shall be,
irrespective of its paid up share capital, become a deemed public company.
• Where not less than 25% of the paid up capital of a public company limited is held by the
private company, then the private company shall become a public company on and from the
date on which the aforesaid percentage is so held.
• Where a private company accepts deposits after the invitation is made by advertisement or
renews deposits from the public (other than from its members or directors or their relative such
companies shall become public company on and from date such acceptance or renewal is first
made.

Limited and Unlimited companies:

Companies may be limited or unlimited companies. Company may be limited by shares or limited by
guarantee.
• Company limited by shares In this case, the liability of members is limited to the amount of
uncalled share capital. No member of company limited by the shares can be called upon to pay
more than the face value of shares or so much of it as is remaining unpaid. Members have no
liability in case of fully paid up shares.
• Company limited by the guarantee is a registered company having the liability of its members
limited by its memorandum of association to such amount as the members may respectively
thereby undertake to pay if necessary on liquidation of the company. The liability of the
members to pay the guaranteed amount arises only when the company has gone into
liquidation and not when it is a going concern. A guarantee company may be a company with
share capital or without share capital.

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Unlimited Company:
The liability of members of an unlimited company is unlimited. Therefore their liability is similar to
that of the liability of the partners of a partnership firm.
5. Section 25 Companies: Under the Companies Act, 1956, the name of a public limited company
must end with the word 'Limited' and the name of a private limited company must end with the word
'Private Limited'. However, under Section 25, the Central Government may allow companies to
remove the word "Limited / Private Limited" from the name if the following conditions are satisfied:-
• The company is formed for promoting commerce, science, art, religion, charity or other
socially useful objects
• The company does not intend to pay dividend to its members but apply its profits and other
income in promotion of its objects.

Holding and Subsidiary companies:

A company shall be deemed to be subsidiary of another company if:-
• That other company controls the composition of its board of directors ; or
• That other company holds more than half in face value of its equity share capital
• Where the first mentioned company is subsidiary company of any company which that other's
subsidiary. E.g. Company B is subsidiary of the Company A and Company C is subsidiary of
Company B, therefore Company C is subsidiary of Company A.
The control of the composition of the Board of Directors of the company means that the holding
company has the power at its discretion to appoint or remove all or majority of directors of the
subsidiary company without consent or concurrence of any other person.

Government Companies:
Means any company in which not less than 51% of the paid up share capital is held by the Central
Government or any State Government or partly by the Central Government and partly by the one or
more State Governments and includes a company which is a subsidiary of a government company.
Government Companies is also governed by the provisions of the Companies Act. However, the
Central Government may direct that certain provisions of the Companies Act shall not apply or shall
apply only with such exceptions, modifications and adaption’s as may be specified to such government
companies.

Foreign Companies:
Means a company incorporated in a country outside India under the law of that other country and has
established the place of business in India.

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 Conversion of Private limited company into Public limited company:

Under the Companies Act(Section 31) , all public companies, whether originally incorporated as a
public limited company or at any time converted into a public limited company (under section 44 of
the Act), may be converted into a private limited company, if the members so desire. The essential
conditions for such a conversion are:-
The company must not be listed on any recognized stock exchange. In case of a listed company, it will
have to wait for at least one year after its delisting.
Shareholder’s approval by special resolution for alteration of Articles of Association and for
incorporation of the definition of a private company. The Articles shall be suitably amended to include
the basic restrictions applicable on a private company and other provisions necessary thereto.
No resolution amending the Articles, which has the effect of converting a public company into a
private company, shall be effective unless it has been approved by the Central Government.
After the alteration has been approved, a printed copy of the Article shall be filed with the Registrar of
Companies within one month of the date of receipt of the order of approval.
The name of the company shall be amended to exclude the word 'private' on all its documents.

The Companies Act contains the following procedure for the conversion: -
• Convene a Board meeting for consideration of the proposal of conversion of the company into
a private company
• Prepare the proposal for alteration of Articles of Association or prepare a new set of Articles of
Association meeting the requirements of a private limited company.
• Hold the Board meeting and get approval of the Board for the proposal, fix up the day, date
and time of holding the general meeting of the company, approve notice and explanatory
statement and authority to sign notice.
• Hold the general meeting on the fixed day and pass the special resolution.
• Fill e-Form 23 with the copy of special resolution, explanatory statement and Memorandum
and Articles (before and after alteration).
• Pay the requisite application fee.
• Publish a newspaper notice in two widely circulated dailies of the State where the Regd. Office
of the company is situated.
• Get a no objection letter from major unsecured creditors and all secured creditors.
• Apply to the Central Government in e-Form 1B.

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Documents to be attached with the application are:-
• Notice of extra-ordinary general meeting.
• Minutes of extra-ordinary general meeting.
• Copy of special resolution.
• Copy of newspaper advertisement.
• Affidavit that the company is not listed on any stock exchange.
• Reference number, date of passing and date of filing the e-Form 23.
• Payment of requisite application fee.
• One copies each of the annual reports for the last three financial years.
• Copy of the last annual return.
• Altered Memorandum and Articles of Association.
• No objection letters from major unsecured and all secured creditors
• Reasons for conversion.
• Terms of appointment of all managerial personnel.
• Power of attorney in favor of the authorized representative.

On receipt of application, the Registrar of Companies (ROC) shall examine:-

• Whether the interest of the public and particularly that of the creditors will be adversely
affected.
• Whether the company is listed.
• Capital contribution by members.
• Whether e-Form 23 has been passed and taken on record.
• Whether the reasons for conversion are just and sufficient.
• How many members voted for the resolution?
• Whether any complaint against the company is pending.
• Whether any show cause letter has been issued to the company or its Directors.
• If there is any objection from members and creditors.

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If the ROC approves the application, he refers it to Technical Section and Prosecution Section for their
report. The Technical Section reports on whether the relevant e-Form23 and the last year’s annual
report and annual return has been filed and passed/taken on record. The Prosecution Section reports on
whether any complaint is pending from anybody against the company. If during the scrutiny any
adverse point arises, that has to be looked into and the authorized representative should take the
initiative to make good the default or defect. If the reports are satisfactory, the ROC will issue a letter
granting its approval for conversion of a private company into a public company. The concerned ROC
then issues fresh certificates of incorporation consequent upon change of name after conversion of the
company from 'Public Company' to 'Private Company'.

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 Conversion of a Public Company into a Private Company:
Section 31 plays an important role during conversion of a public company into a private company. As
conversion of a public company into a private company involves alteration of article of association of
public company which cannot be done under section 31 of the Companies Act, 1956, without previous
approval of Central Government (powers delegated to the ROC).

Procedure to convert Public Company into a Private Company is as follows:-

• Take the necessary decision of conversion b convening a Board Meeting as per topic 114 and
fix up the time, place and agenda for convening General Meeting to alter the Articles of
Association subject to the approval of the Central Government and consequently, the name, by
special Resolutions. [Section 31(1) proviso read with section 21 provisos].
• Issue notices for the General Meeting proposing Special Resolutions with suitable explanatory
statements vide topics 119, 121, 131, 133 [Sections 166, 169, 171, 172 and 173].
• See if the quorum of five members personally present exists, and if so, then convene the
General Meeting and pass the Special Resolutions to the following effect:--
• To change the Articles by incorporating in them the conditions necessary to make the company
private company, vide Section 3 (1) (iii). Such other Articles which do not apply to a private
company may also be deleted, all these subject to the approval of the Central Government
• Consequent to the above changes, to add the word “private” in the name of the company before
the word “limited” [Section 21 proviso]. The above changes, except in so for the same relates
to addition of the word “private” to the name of the company, will be made in the Articles,
subject to the approval of the Central Government, by delegation to the Regional Director, for
the conversion of a public company into a private company and will only be effective when
approved by him; otherwise the old position will remain. [Section 31, proviso]. This should
mention in the body of the resolution itself and also should be elaborated in the Explanatory
Statements.
• Forward to the Stock Exchange with which our company is enlisted six copies (one of which
will be certified) of the amendments made in the Articles as soon as they have been adopted by
the company in General Meeting [Standard Listing Agreement].
• File the Special Resolutions passed with Explanatory Statements with the concerned Registrar
of Companies in form No.23 within thirty days of their passing [Section 192] after paying
requisite fee prescribed under Schedule X to the Act, either by way of cash, postal order,

17
 demand draft or treasury challan (Rule 22] . Postal order is accepted up to Rs.50/-[Rule 22(3).
Provision].
• Apply to the Regional Director; Bombay/Calcutta/Kanpur/Madras as the case may be for
approving the changes mentioned in item 3 above in form No.1B enclosing necessary papers as
mentioned in the said Form including the treasury challan or demand draft for the fees within
three months from the passing of the Special Resolution. [Rule 4B, read with G.S.R. No.288
(E) dated 31-5-1991 delegating the power of the Central Government to the Regional
Directors].
• Pay the requisite filing fee for the application which is minimum Rs.50 and maximum Rs.500
depending on the nominal share capital of the company by way of demand draft or treasury
challan.
• If paid by way of demand draft, then draw the demand draft in favor of the Pay and Accounts
Officer, Department of Company Affairs, New Delhi, Madras or Bombay or Calcutta or
Kanpur, as the case may be, depending on the jurisdiction of the concerned Regional Director
on the registered office of the company.
• If paid by way of treasury challan, then obtain three copies of treasury challan from the
specified branches of the Punjab National Bank and fill up the details and deposit along with
the fees in cash to the said branch of the bank. The head of account should be“104—Other
General Economic Services—Regulation of joint stock companies—Fees realized by Central
Government on application made to it under the Companies Act, 1956 [Rule 22(2)],. Two
copies of the challan will be given back to the depositor one of which should be sent to the
Regional Director concerned along with the forms and documents mentioned below:
• Forward a copy of the application along with the copies of all the documents enclosed
therewith to with the concerned Registrar of Companies simultaneously [Rule 20A].
• The Regional Director at Bombay/Calcutta/Kanpur/Madras, on receipt of an application, may
require a suitable notice to be published in newspapers; and in that case, the same should be
complied with and relevant newspaper clippings should be sent to him, as soon as the notice is
published.
• Forward promptly to the Stock Exchange with which your company is enlisted, three copies of
the notices and a copy of the proceedings of the General Meeting. Also forward to it three
copies of the notice published in newspaper as per Regional Director’s instructions. [Standard
Listing Agreement].
• Being satisfied on all accounts, the Regional Director at Bombay/Calcutta/Kanpur/Madras will
approve the changes and the conversion of the company from public to private, and the
conversion will be effective from that date.
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 • Get the altered articles printed and file a copy thereof along with requisite filing fee in cash as
prescribed under Schedule X of the Act with the concerned Registrar of Companies within a
month from the date of receipt of the approval. [Section 31 (2A)].
• Apply to the concerned Registrar of Companies for issue of a fresh Certificate of Incorporation
in the changed name, viz., and the existing name with the word “private”. On issue of such
fresh Certificate, the change of name of the converted company shall be final and complete.
[Section 23].
• It should thus be noted that, although the company becomes a private company as soon as the
approval of the Regional Director for the conversion under Section 31 is received, the change
in its name becomes complete and effective only on the issue of the fresh Certificate of
Incorporation b the concerned Registrar of Companies in the changed name [Section 23(1)].
• Necessary alteration in the Memorandum of Association of the company will also be made by
the concerned Registrar of companies on its own immediately after issuing of fresh certificate
of incorporation in the changed name affected by the conversion of the company from public to
private. [Section 23(2)].
• The aforesaid change of name shall not affect any rights or obligations of the company, or
render defective any legal proceedings by or against it; and any legal proceedings which might
have been continued or commenced by or against the company by its former name may be
continued by or against the company by its new name. [Section 23(3)].

Documents to be attached with the application are:-

• A certified true copy of the current Memorandum and Articles of Association;
• A certified true copy of the latest audited Balance-Sheet and Profit & Loss Account with
Directors’ and Auditors’ Reports;
• A certified true copy of the special resolution passed for alteration of articles for conversion;
• A certified true copy of the minutes of the meeting at which the decision for converting
company was taken;
• A certified true copy of the Notice of the general meeting in which the special resolution was
passed along with the relevant explanatory statement;
• Treasury challan or demand draft evidencing the payment of the requisite filing fee, as the case
may be.

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Bibliography
1) Company law of F.Y.B.M.S – text book Himalaya Publication

2) http://www.legalserviceindia.com/company
%20law/company_formation_procedure.htm

3) www.google.com

4) http://en.wikipedia.org/wiki/Company

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