types of companies and conversion of companies

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A company is a business organization . It is an association or collection of individual real persons and/or other companies, who each provide some form of capital . This group has a common purpose or focus and an aim of gaining profits . This collection, group or association of persons can be made to exist in law and then a company is itself considered a " legal person ". 10/2/2012 HIRAK SINHA 3rd sem 2

Companies Act 1956:

Companies Act 1956 The Companies Act 1956 is an Act of the Parliament of India , enacted in 1956, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries . The Companies Act 1956 is administered by the Government of India through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board , Director of Inspection, etc. The Registrar of Companies (ROC) handles incorporation of new companies and the administration of running companies. 10/2/2012 HIRAK SINHA 3rd sem 3

TYPES OF COMPANIES:

TYPES OF COMPANIES 10/2/2012 HIRAK SINHA 3rd sem 4

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Incorporated Chartered companies: A Chartered Company is an association formed by investors or shareholders for the purpose of trade, exploration and colonization. Formerly in Great Britain, companies were formed by Royal Charter for specific purpose. example: East India Company. Statutory companies: A company may be incorporated by means of a special Act of the Parliament or any State Legislature. Such companies are called Statutory companies . Statutory companies are created and organised for special public undertakings. example: Reserve Bank of India, Railway, etc 10/2/2012 HIRAK SINHA 3rd sem 5

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Registered Companies: A company must be registered under the Companies Act. After registration, the registrar of the companies issues a Certificate of Incorporation. Companies registered under the Companies Acts are called Registered Companies sec 12(2) provides that a company registered under the Act may be: (a) a company limited by shares (b) a company limited by guarantee (c) an unlimited company. 10/2/2012 HIRAK SINHA 3rd sem 6

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Company limited by shares: In a company limited by shares the liability are limited by the memorandum to the amount, if any, unpaid on the shares respectively held by share holders. The liability can be enforced during the existence of the company as well as during the winding up. Where the shares are fully paid up, no more further liability rests on them. Companies limited by guarantee: it is a registered company public or private, in which the liability of members is limited to such amounts as they may respectively undertake by the memorandum to contribute to the assets of the company in the event of its being wound up. In such case the liability of the members are limited to the amount of guarantee undertaken by them. 10/2/2012 HIRAK SINHA 3rd sem 7

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Unlimited companies: A company not having any limit on the liability of its members is termed as unlimited company. In such a company the liability of each member extends to the whole amount of the company’s debts and liabilities, but he will be entitled to claim contribution from other members. 10/2/2012 HIRAK SINHA 3rd sem 8

Private and Public Companies:

Private and Public Companies Private Companies: A Private Company is a business company owned either by non-governmental organisation or by a relatively small number of shareholders or company members which does not offer or trade its company stock (share) to the general public on the stock market exchanges, but rather the company's stock is offered, owned and traded or exchanged privately. The definition of private company as contained in sec 3( i )(iii) has been amended by Companies (Amendment) Act 2000. It 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: (i) restricts the right to transfer its shares (ii) limits the number of its members to fifty (iii) prohibits any invitation to the public to subscribe for any shares of debentures of the company (iv) prohibits any invitation or acceptance of deposits from persons other than the members, directors or their relatives. 10/2/2012 HIRAK SINHA 3rd sem 9

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Public Companies: A public company, publicly traded company, publicly held company or public limited company is a limited liability company that offers its securities(stocks/ shares/ bonds/ loans, etc.) for sale to the general public, typically through a stock exchange, or through market makers operating in over the country markets. Public companies, including public limited companies, can be either unlisted or listed on a stock exchange depending on their size and local legislation. It has a minimum paid-up capital of five lakhs rupees or such higher paid-up capital, as may be prescribed. 10/2/2012 HIRAK SINHA 3rd sem 10

Difference between private and public companies:

Difference between private and public companies A private company must have a minimum paid up capital of Rs. 1,00,000 where a public company must have a minimum paid up capital of Rs. 5,00,000 as per Amendment Act 2000. The number of members in a private company cannot be less than 2 and cannot be more than 50 . In a public company numbers of members cannot be less than 7 but no maximum has been fixed. 10/2/2012 HIRAK SINHA 3rd sem 11

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In private companies there is a restriction on transfer of shares. In public companies restriction is not there. A private company can invite the public to purchase the shares or debentures. A public company may do so. – sec.(1)(iii)(c). A private company must add the words, “private limited” at the end of its name. A private company need not file a prospectus or a statement in lieu of prospectus. 10/2/2012 HIRAK SINHA 3rd sem 12

Conversion of a private company into a public company:

Conversion of a private company into a public company A Private Company may become a Public Company in any of the following methods: a) Conversion by default: A Private Company may become public company by default, as provided in section 43. If a private company fails to comply with the essential requirements of a private company ( like limitation of the numbers to 50, restrictions on the transfer of shares or debentures, prohibition of invitation to the public to buy shares or debentures) it shall cease to enjoy the privileges of private companies and the company will be treated as if it were a public company.-sec.43. b) Conversion by choice: A private company may deliberately choose to become a public company. If a private company deletes from its articles the requirements of section 3(1)(iii) by passing a special resolution, the company will cease to be a private company from the date of alteration of the articles. 10/2/2012 HIRAK SINHA 3rd sem 13

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( c) By Resolution: Section 44 provides the method by which a private company can be converted into a public company, like: By passing a special resolution altering its articles so as to eliminate the three restrictions on private companies ( like limitation of the numbers to 50, restrictions on the transfer of shares or debentures, prohibition of invitation to the public to buy shares or debentures) and Filing with registrar within 50 days, a prospectus or statement in lieu of prospectus. (d) Automatic Conversion: Where the average turnover of a private company, whether in existence at the commencement of the Companies (Amendment) Act, 1974, or incorporation there after, is not, during the relevant period, less than rupees one crore , the private company shall, irrespective of its paid-up share capital, become on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this subsection,-43(1A), Companies (Amendment) Act 1974. 10/2/2012 HIRAK SINHA 3rd sem 14

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When a private company chooses to become a public company it will have to comply with all the provisions of the Companies Act applicable to a public company. Within 50 days of its becoming a public company, it shall file with the registrar a prospectus or a statement in lieu of prospectus and a printed or type written copy of the special resolution [sec 44] Further the following requirements have also to be made if a private company chooses to become a public company: If the number of members is less than seven, it must be raised to at least seven. It the number of Directors is less than three, it must be raised to at least three. Alter the regulations contained in the articles which are inconsistent with those of a public company. The word ‘private’ shall be deleted before the word ‘limited’ in its name. 10/2/2012 HIRAK SINHA 3rd sem 15

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The prospectus or statement in lieu of prospectus to be filed by a private company on its conversion into public company must be in accordance with the form and requirements of Parts III of schedules II and IV respectively. In case of default the company and every officer party thereto shall be liable to fine to the extent of Rs. 5000 per day. 10/2/2012 HIRAK SINHA 3rd sem 16

Conversion of public company into private company:

Conversion of public company into private company The Act itself does not empower a public company to turn into a private company, but it does not prohibit such conversion either. No specific procedure similar to one as laid down is section 44 for the purpose of conversion of a private company into a public company is to be found. The absence of any specific provision corresponding to section 44 does not debar the conversion of a public company into a private company, and if any such conversion is made, it is permissible and valid. A public company may be converted into a private company by altering the articles incorporating the four restrictions mentioned in section 3(1)(iii). The following points should be taken into account at the time of conversion: Requires to change the name of the company by a special resolution 10/2/2012 HIRAK SINHA 3rd sem 17

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Alteration in the article of association ( e.g power to issue share warrants may have to be deleted Such alteration in the AOA will be made by a special resolution and the approval of the Central Government A copy of the special resolution has to be filed with the Registrar within 30 days After the conversion, a copy of the special resolution authorizing the conversion shall be included in every copy of the articles issued thereafter. The conversion of a public company into a private company doesn’t affect the identity of the company. 10/2/2012 HIRAK SINHA 3rd sem 18

RESULTS OF CONVERSION:

RESULTS OF CONVERSION A private company loses its privileges when a private company becomes a public company by the methods stated above. The conversion of the company does not change the incorporation of the company. Sec. 43A of the companies Amendment Act, 1960, has created a mixture between a private company and a public company. A private company, formed by holding bodies corporate is private in name only but it is actually public. The amendment of Companies Act 1974 also created a mixture between private and public company. It a private company has a turnover of Rs. 1 crore it will be deemed to be public company. The government has the power to change the composition of the BOARD of DIRECTORS, fix the remuneration of the Directors,. 10/2/2012 HIRAK SINHA 3rd sem 19

REFERENCE::

REFERENCE: Commercial law and Industrial Law, Arun Kumar Sen and Jitendra kumar Dutta , page no. 554 to 570, The world press pvt . Ltd. Company Law, Vijay Gupta and K.C Garg , page no. 2.1 to 2.10, Kalyani Publishers. http://en.wikipedia.org/wiki/Company , date 10/09/12, time 9:45pm. http://business.gov.in/closing_business/pvt_public.php , date 17/09/12, time 10:53pm http://www.lawyersclubindia.com/forum/Conversion-of-a-Public-Company-into-a-Private-Company-17617.asp#.UFdbgLLiYc8 , date 17/09/12, time 11:09pm. 10/2/2012 HIRAK SINHA 3rd sem 20

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10/2/2012 HIRAK SINHA 3rd sem 21

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