2-NATURE AND KIND OF COMPANIES

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Chapter No 2 Nature and kinds of companies:

Chapter No 2 Nature and kinds of companies

NATURE OF COMPANY:

NATURE OF COMPANY Now a days, to start or carry on business requires huge investment. It may not be possible for a single person to fulfill all his financial requirements. Thus, the business may be desirous of carrying on joint business enterprises. So, the law offers a choice between a partnership and a company. The partnership is suitable for small business, in which the partners take personal interest and work together. But sometimes, the businessman like to start business on large scale requiring huge investment . In such cases, the formation of company is the only choice.

DEFINITON OF COMPANY:

DEFINITON OF COMPANY A company is a voluntary association of persons formed to achieve some common objectives, having a separate legal entity, with a perpetual succession and a common seal, and with capital divisible into transferable shares. 3

Characteristics of a company or Advantages of Incorporation :

Characteristics of a company or Advantages of Incorporation 1- It has a separate legal entity : It means that the existence of a company is independent and separate from its members. 2- It has a perpetual succession : The term ‘perpetual succession’ may be defined as the continuous existence. The membership of a company may change from time to time, but it does not affect the company’s continuity. 3- It has a separate property : Company may own property in its own name. The assets of a company belong to the company itself, not to stockholders. 4

Continu……:

Continu…… 4) It has capacity to sue and being sued : Being a legal person, the company can file suits against others in its own name. Similarly, the suits can also be filed in company’s name. 5) It has a common seal : It has a common seal which is used as substitute for its signature. The common seal is the official signature of a company. 6) Its members have limited liability: 7) Its shares are freely transferable: 5

Disadvantages of incorporation :

Disadvantages of incorporation Formal Business : Company’s formation requires many formalities and is expensive business. Company social responsibility is greater : Company’s members cannot have effective control: Company’s tax burden is heavy: Company winding up procedure is expensive and time consuming: 6

Kinds of company :

Kinds of company Chartered Companies. Statutory Companies. Registered Companies. Private Companies. Public Companies. Government Companies. Foreign Companies. Single Member Companies. 7

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` Chartered Companies : A chartered company is one which is incorporated (formed) under a Special Charter granted by the King or Queen of England. Statutory Companies : A statutory is one which is incorporated by a Special Act of the Legislature (i.e., by the Act of Parliament or State Legislature). Such companies are, generally, created for public utility services, and their main objective is not to earn profit, but to serve general public. The nature and powers of such companies are defined by Special Act, under which they created. 3. Registered Companies: A registered company is one which is formed and registered under the companies law. It may be noted that a registered company comes into existence when it is registered under law. The registered companies are governed by the provisions of the companies law. Its further two kinds: a) Limited Company b) Unlimited Company( such companies are not found )

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4. Private Companies : Private company is must be registered under companies law. The legal position(status) of private company is similar to that of public company. A private company cannot invite subscription from the public. Transfer of shares is restricted in a private company. A private company should have at least two members and maximum numbers cannot exceed 50. A private company is not required to obtain certificate for commencement of business. No qualification is prescribed for an auditor of private company except when it has paid up capital exceeding 3 million. A private company is not required to hold a statutory meeting.

advantages of Private Companies :

advantages of Private Companies Its formation is easy: Its can immediately start its business: It is exempted from the issue of Prospectus: It is exempted from keeping on index of members: It need have just two directors: Disadvantages of a Private Company Restrictions on members:- Restrictions on transferability of shares:- Restrictions on issue of prospectus:- 10

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Public Companies : A public company is also registered under companies law. A public company can invite subscription from the public. A public company does not have restriction on transfer of shares. A public company should have at least seven members. There is no restriction on upper limit of the members. A public company has to seek certificate for commencement of business. A public company is required to file prospectus of statement in lieu of prospectus for obtaining certificate for commencement of business. A public company is required to file its accounts with the registrar. Auditors’ qualification is prescribed as chartered accountant. 11

Comparison between Private and Public Company :

Comparison between Private and Public Company PRIVATE COMPANY PUBLIC COMPANY It is formed and registered under the Companies Act, and is a separate legal entity. The minimum number of persons required to form a company is two. The maximum number of members must not exceed fifty. It is also formed and registered under the Companies Act, and is also a separate legal entity. The minimum number of persons required to form a company is seven. There is no such restriction on the maximum number of members 12

Contin…..:

Contin….. Private Company Public Company It is not required to obtain a certificate to commence business. It is not required to hold a statutory meeting, and need not to file statutory report with the Registrar. The directors are not required to retire by rotation. It is required to obtain a certificate to commence business from the Registrar of Companies. It must hold a statutory meeting, and file a statutory report with the Registrar of Companies. Two-third of the directors of the company must retire by rotation. 13

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Private Company Public Company It is not required to issue prospectus to general public. The minimum directors are must be two. The number of directors may be increased without permission of registrar. It is required to issue prospectus to general public. The minimum directors are required seven. The number of directors can not be increased with out permission of registrar. 14

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Government Companies: A government company is one in which 51% or more of the paid up share capital is held by the Central government or by any provincial governments. The provisions of companies laws are applicable to the government companies in the same manner as they apply to any other company. Such company is a separate legal entity independent from its shareholders, who may be the central or provincial governments.

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Foreign Companies: A foreign company is one which is registered outside the country. It means registered outside but business activity and placed in such country. A company in which the majority shareholdings and managerial powers is in the hands of foreigners.

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Single member Companies : A sole proprietorship can be transformed into a company. It will not be necessary for a person to associate with another person just to form a company. A single individual or person may form a company just by subscribing to memorandum of association. The benefit of having a status of a company shall also be availed by such a single member. Transfer of shares is restricted and shall be at the will of single member only. A single member company shall have only one member; it can be converted into two member private company just by inducting another person as member. 17

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