The Companies Act An Overview; Nature and kinds of Companies?

 The Companies Act An Overview; Nature and kinds of Companies;

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INTRODUCTION

Industrial has revolution led to the emergence of large scale business

organizations. These organization require big investments and the risk involved is very high. Limited resources and unlimited liability of partners are two important limitations of partnerships of partnerships in undertaking big business. Joint Stock Company form of business organization has become extremely popular as it provides a solution to

(3)According to Haney, “Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares. The ownership of which is the condition of membership”.From the above definitions, it can be concluded that a company is registered association which is an artificial legal person, having an independent legal, entity with

a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability.

CHARACTERISTICS OF A COMPANY

The main characteristics of a company are :

1.

Incorporated association.

A company is created when it is registered under

the Companies Act. It comes into being from the date mentioned in the certificate of incorporation. It may be noted in this connection that Section 11 provides that an association of more than ten persons carrying on business in banking or an association or more than twenty persons carrying on any other type of business must be registered

under the Companies Act and is deemed to be an illegal association, if it is not so registered. For forming a public company at least seven persons and for a private company at least two persons are persons are required. These persons will subscribe their names to the Memorandum of association and also comply with other legal requirements of the Act in respect of registration to form and incorporate a company, with or without limited liability [Sec 12 (1)](4)

2.

Artificial legal person.

A company is an artificial person. Negatively speaking, it is not a natural person. It exists in the eyes of the law and cannot act on its own. It has to act through a board of directors elected by shareholders. It was rightly pointed out in Bates V Standard Land Co. that : “The board of directors are the brains and the only brains of the company, which is the body and the company can and does act only through them”.

But for many purposes, a company is a legal person like a natural person. It has the right to acquire and dispose of the property, to enter into contract with third parties in its own name, and can sue and be sued in its own name. However, it is not a citizen as it cannot enjoy the rights under the Constitution of India or Citizenship Act. In State Trading Corporation of India v C.T.O (1963 SCJ 705), it was held that neither the provisions of the Constitution nor the Citizenship Act apply to it. It should be noted that though a company does not possess fundamental rights, yet it is person in the eyes of law. It can enter into contracts with its Directors, its members, and outsiders. Justice Hidayatullah once remarked that if all the members are citizens of India, the company does not become a citizen of India.

3.

Separate Legal Entity :  A company has a legal distinct entity and is independent of its members. The creditors of the company can recover their money only from the company and the property of the company. They cannot sue individual members. Similarly, the company is not in any way liable for the individual debts of its members. The property of the company is to be used for the benefit of the company and nor for (5) the personal benefit of the shareholders. On the same grounds, a member cannot claim any ownership rights in the assets of the company either individually or jointly during the existence of the company or in its winding up. At the same time the members of the company can enter into contracts with the company in the same manner as any other individual can. Separate legal entity of the company is also recognized by the Income Tax Act. Where a company is required to pay Income-tax on its profits and when these profits are distributed to shareholders in the form of dividend, the shareholders have to pay income-tax on their dividend of income. This proves that a company that a company and its shareholders are two separate entities.

The principal of separate of legal entity was explained and emphasized in the famous case of Salomon v Salomon & Co. Ltd.

The facts of the case are as follows : Mr. Saloman, the owner of a very prosperous shoe business, sold his business for the sum of $ 39,000 to Saloman and Co. Ltd. which consisted of Saloman himself, his wife, his daughter and his four sons. The purchase consideration was paid by the

company by allotment of & 20,000 shares and $ 10,000 debentures and the balance in cash to Mr. Saloman. The debentures carried a floating charge on the assets of the company. One share of $ 1 each was subscribed by the remaining six members of his family. Saloman and his two sons became the directors of this company. Saloman was the managing Director. After a short duration, the company went into liquidation. At that time the statement of affairs’ was like this: Assets :$ 6000, liabilities; Saloman as debenture (6) holder $ 10,000 and unsecured creditors $ 7,000. Thus its assets were running short of its liabilities b $11,000

The unsecured creditors claimed a priority over the debenture holder on the ground that company and Saloman were one and the same person. But the House of Lords held that the existence of a company is quite independent and distinct from its members and that the assets of the company must be utilized in payment of the debentures first in priority to unsecured creditors. Saloman’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person hold all the shares in the company. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case the company is a separate legal entity. The principle established in Saloman’s case also been applied in the following: Lee V. Lee’s Airforming Ltd. (1961) A.C. 12 Of the 3000 shares in Lee’s Air Forming Ltd., Lee held 2999 shares. He voted himself the managing Director and also became Chief Pilot of the company on a salary. He died in an aircrash while working for the company. His wife was granted compensation for the husband in the course of employment. Court held that Lee was a separate person from the company he formed, and compensation was due to the widow. Thus, the rule of corporate personality enabled Lee to be the master and servant at the same time.

The principle of separate legal entity of a company has been, in fact recognized much earlier than in Saloman’s case. In Re Kondoi Tea Co Ltd. (1886 ILR 13 Cal 43), (7) it was held by Calcutta High Court that a company was a separate person, a separate body altogether from its Shareholders. In Re. Sheffield etc. Society - 22 OBD 470), it has been held that a corporation is a legal person, just as much in individual but with no physical existence. The characteristic of separate corporate personality of a company was also emphasized by Chief Justice Marshall of USA when he defined a company “as a person, artificial, invisible, intangible and existing only in the eyes of the law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as accident to its very existence”. [Trustees of Darmouth College v woodward (1819) 17 US 518)

4.

Perpetual Existence.

A company is a stable form of business organization. Its life does not depend upon the death, insolvency or retirement of any or all shareholder

(s) or director (s). Law creates it and law alone can dissolve it. Members may come and go but the company can go on for ever. “During the war all the member of one private company , while in general meeting, were killed by a bomb. But the company survived; not even a hydrogen bomb could have destroyed i”. The company may be compared with a flowing river where the water keeps on changing continuously, still the identity of the river remains the same. Thus, a company has a perpetual existence, irrespective of changes in its membership.

5.

Common Seal.

As was pointed out earlier, a company being an artificial person has no body similar to natural person and as such it cannot sign documents for itself. It acts through natural person who are called its directors. But having a legal personality,

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it can be bound by only those documents which bear its signature. Therefore, the law has provided for the use of common seal, with the name of the company engraved on it,

as a substitute for its signature. Any document bearing the common seal of the company will be legally binding on the company. A company may have its own regulations in its Articles of Association for the manner of affixing the common seal to a document. If the Articles are silent, the provisions of Table-A (the model set of articles appended to the Companies Act) will apply. As per regulation 84 of Table-A the seal of the company shall not be affixed to any instrument except by the authority of a resolution of the Board or a Committee of the Board authorized by it in that behalf, and except in the presence of at least two directors and of the secretary or such other person as the Board may appoint for the purpose, and those two directors and the secretary or other person aforesaid shall sign every instrument to which the seal of the company is soaffixed in their presence.

6.

Limited Liability :

A company may be company limited by shares or a company limited by guarantee. In company limited by shares, the liability of members is limited to the unpaid value of the shares. For example, if the face value of a share in a company is Rs. 10 and a member has already paid Rs. 7 per share, he can be called upon to pay not more than Rs. 3 per share during the lifetime of the company. In a company limited by guarantee the liability of members is limited to such amount as the member may undertake to contribute to the assets of the company in the event of its being wound up.

7.

Transferable Shares. In a public company, the shares are freely transferable. The right to transfer shares is a statutory right and it cannot be taken away by a provision

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in the articles. However, the articles shall prescribe the manner in which such transfer of shares will be made and it may also contain bona fide and reasonable restrictions on the right of members to transfer their shares. But absolute restrictions on the rights of members to transfer their shares shall be ultra vires. However, in the case of a private company, the articles shall restrict the right of member to transfer their shares in companies with its statutory definition. In order to make the right to transfer shares more effective, the shareholder can apply to the Central Government in case of refusal by the company to register a transfer of shares.

8.

Separate Property : As a company is a legal person distinct from its members, it is capable of owning, enjoying and disposing of property in its own name. Although its capital and assets are contributed by its shareholders, they are not the private and joint owners of its property. The company is the real person in which all its property is vested and by which it is controlled, managed and disposed of.

9.

Delegated Management : A joint stock company is an autonomous, self-

governing and self-controlling organization. Since it has a large number of members, all of them cannot take part in the management of the affairs of the company. Actual control and management is, therefore, delegated by the shareholders to their elected

representatives, know as directors. They look after the day-to-day working of the

company. Moreover, since shareholders, by majority of votes, decide the general policy

of the company, the management of the company is carried on democratic lines.

Majority decision and centralized management compulsorily bring about unity of action

1.4 DISTINCTION BETWEEN COMPANY AND PARTNERSHIP

The difference between a company and partnership is as follows:

Company Partnership

1. Mode of creation By Registration by By AgreementStatute.

2. Legal Statute Legal entity distinct Firm and partnersfrom members, are not separate; noperpetual succession. separate entity;uncertain life

3. Liability Limited liability of Unlimited joint andmembers several liability of partners

4. Authority Divorce between Right to share mana ownership and gement, common and management ownership and Representative Management. Management Mutual agency -

Implied authority.

5. Transfer Public Co.-freely Ordinarily no right of of shares transferable; transferee transfer of share by a gets all the rights of partner-limited rights the transferor of transferee

6. Number of Private Co-Minimum 2 Minimum 2 members and Maximum 50 Maximum 20. public Co. Minimum7 and Maximum unlimited.

7. Resources Large and unlimited Personal resources of resources partners are limited.

8. General Memorandum defines Easy to change the powers and confines the scope agreement and so also of the company. the powers of the alteration difficult. partners.

9. Legal Statutory books, No legal formalities formalities Audit, Publication Registration not Registration, compulsory. No audit,

filing, etc. lots of legal no publication of formalities accounts etc.

10. Dissolution Only according to the Dissolution by provisions of law- agreement by usually by an order of notice, by court.

the court. Death of a partner Death of a share- may mean dissolution holder does not of partnership affect the existence of a company.

1.5 TYPES OF COMPANY

Joint stock company can be of various types. The following are the important types

of company:

1. Classification of Companies by Mode of Incorporation

Depending on the mode of incorporation, there are three classes of joint stock

companies.

A. Chartered companies. These are incorporated under a special charter by a monarch. The East India Company and The Bank of England are examples of chartered incorporated in England. The powers and nature of business of a chartered company are defined by the charter which incorporates it. A chartered company has wide powers. It can deal with its property and bind itself to any contracts that any ordinary person can. In case the company deviates from its business as prescribed by

the charted, the Sovereign can annul the latter and close the company. Such companies do not exist in India.

B. Statutory Companies. These companies are incorporated by a Special Act passed by the Central or State legislature. Reserve Bank of India, State Bank of India, Industrial Finance Corporation, Unit Trust of India, State Trading corporation and Life Insurance Corporation are some of the examples of statutory companies. Such companies do not

have any memorandum or articles of association. They derive their powers from the Acts constituting them and enjoy certain powers that companies incorporated under the Companies Act have. Alternations in the powers of such companies can be brought about by legislative amendments. (13)The provisions of the Companies Act shall apply to these companies also except in so far as provisions of the Act are inconsistent with those of such Special Acts [Sec 616 (d)] These companies are generally formed to meet social needs and not for the purpose of earning profits. C. Registered or incorporated companies. These are formed under the Companies Act, 1956 or under the Companies Act passed earlier to this. Such companies come into existence only when they are registered under the Act and a certificate of incorporation has been issued by the Registrar of Companies. This is the most popular mode of incorporating a company. Registered companies may further be divided into three categories of the following. i) Companies limited by Shares : These types of companies have a share capital and the liability of each member or the company is limited by the Memorandum to the extent of face value of share subscribed by him. In other words, during the existence of the company or in the event of winding up, a member can be called upon to pay the amount remaining unpaid on the shares subscribed by him. Such a company is called company limited by shares. A company limited by shares may be a public company or a private company. These are the most popular types of companies. ii) Companies Limited by Guarantee : These types of companies may or may not have a share capital. Each member promises to pay a fixed sum of money specified in

the Memorandum in the event of liquidation of the company for payment of the debts

and liabilities of the company [Sec 13(3)] This amount promised by him is called (14) ‘Guarantee’. The Articles of Association of the company state the number of member with which the company is to be registered [Sec 27 (2)]. Such a company is called a company limited by guarantee. Such companies depend for their existence on entrance and subscription fees. They may or may not have a share capital. The liability of the member is limited to the extent of the guarantee and the face value of the shares subscribed by them, if the company has a share capital. If it has a share capital, it may be a public company or a private company. The amount of guarantee of each member is in the nature of reserve capital. This amount cannot be called upon except in the event of winding up of a company. Nontrading or non-profit companies formed to promote culture, art, science, religion, commerce, charity, sports etc. are generally formed as companies limited by guarantee.

iii) Unlimited Companies : Section 12 gives choice to the promoters to form a company with or without limited liability. A company not having any limit on the liability of its members is called an ‘unlimited company’ [Sec 12(c)]. An unlimited company may or may not have a share capital. If it has a share capital it may be a public company or a private company. If the company has a share capital, the article shall state the amount of share capital with which the company is to be registered [Sec 27 (1)] The articles of an unlimited company shall state the number of member with

which the company is to be registered.

II. On the Basis of Number of Members On the basis of number of members, a company may be : (1) Private Company, and (2) Public Company.(15)

A. Private Company

According to Sec. 3(1) (iii) of the Indian Companies Act, 1956, a private company is that company which by its articles of association :

i) limits the number of its members to fifty, excluding employees who are

members or ex-employees who were and continue to be members;

ii) restricts the right of transfer of shares, if any;

iii) prohibits any invitation to the public to subscribe for any shares or

debentures of the company.

Where two or more persons hold share jointly, they are treated as a single member. According to Sec 12 of the Companies Act, the minimum number of members to form a private company is two. A private company must use the word “Pvt” after its name. Characteristics or Features of a Private Company. The main features of a private

of a private company are as follows :

i) A private company restricts the right of transfer of its shares. The shares

of a private company are not as freely transferable as those of public

companies. The articles generally state that whenever a shareholder of a

Private Company wants to transfer his shares, he must first offer them to

the existing members of the existing members of the company. The price

of the shares is determined by the directors. It is done so as to preserve

the family nature of the company’s shareholders.

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ii) It limits the number of its members to fifty excluding members who are

employees or ex-employees who were and continue to be the member.

Where two or more persons hold share jointly they are treated as a single

member. The minimum number of members to form a private company

is two.

iii) A private company cannot invite the public to subscribe for its capital or shares of debentures. It has to make its own private arrangement.

B. Public company

According to Section 3 (1) (iv) of Indian Companies Act. 1956 “A public

company which is not a Private Company”,

If we explain the definition of Indian Companies Act. 1956 in regard to

the public company, we note the following :

i) The articles do not restrict the transfer of shares of the company

ii) It imposes no restriction no restriction on the maximum number of the

members on the company.

iii) It invites the general public to purchase the shares and debentures of the companies (Differences between a Public Company and a Private company)

1. Minimum number : The minimum number of persons required to form a

public company is 7. It is 2 in case of a private company.

2. Maximum number : There is no restriction on maximum number of membersin a public company, whereas the maximum number cannot exceed 50 in a privatecompany.(17)

3. Number of directors. A public company must have at least 3 directors whereas a private company must have at least 2 directors (Sec. 252)

4. Restriction on appointment of directors. In the case of a public company, the directors must file with the Register a consent to act as directors or sign an undertaking for their qualification shares. The directors or a private company need not do so (Sec 266)

5. Restriction on invitation to subscribe for shares. A public company invites the general public to subscribe for shares. A public company invites the general public to subscribe for the shares or the debentures of the company. A private company by its Articles prohibits invitation to public to subscribe for its shares.

6. Name of the Company : In a private company, the words “Private Limited” shall

be added at the end of its name.

7. Public subscription : A private company cannot invite the public to purchase

its shares or debentures. A public company may do so.

8. Issue of prospectus : Unlike a public company a private company is not expected

to issue a prospectus or file a statement in lieu of prospectus with the Registrar

before allotting shares.

9. Transferability of Shares. In a public company, the shares are freely transferable

(Sec. 82). In a private company the right to transfer shares is restricted by Articles.

10. Special Privileges. A private company enjoys some special privileges. A public

company enjoys no such privileges.

11. Quorum. If the Articles of a company do not provide for a larger quorum. 5

members personally present in the case of a public company are quorum for a

meeting of the company. It is 2 in the case of a private company (Sec. 174)

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12. Managerial remuneration. Total managerial remuneration in a public company

cannot exceed 11 per cent of the net profits (Sec. 198). No such restriction

applies to a private company.

13. Commencement of business. A private company may commence its business

immediately after obtaining a certificate of incorporation. A public company

cannot commence its business until it is granted a “Certificate of Commencement

of business”.

Special privileges of a Private Company

Unlike a private a public company is subject to a number of regulations and

restrictions as per the requirements of Companies Act, 1956. It is done to safeguard

the interests of investors/shareholders of the public company. These privileges can be

studied as follows :

a) Special privileges of all companies. The following privileges are available to

every private company, including a private company which is subsidiary of a public

company or deemed to be a public company :

1. A private company may be formed with only two persons as member. [Sec.12(1)]

2. It may commence allotment of shares even before the minimum subscription is

subscribed for or paid (Sec. 69).

3. It is not required to either issue a prospectus to the public of file statement in

lieu of a prospectus. (Sec 70 (3)]

4. Restrictions imposed on public companies regarding further issue of capital do

not apply on private companies. [Sec 81 (3)]

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5. Provisions of Sections 114 and 115 relating to share warrants shall not apply to

it. (Sec. 14)

6. It need not keep an index of members. (Sec. 115)

7. It can commence its business after obtaining a certificate of incorporation. A

certificate of commencement of business is not required. [Sec. 149 (7)]

8. It need not hold statutory meeting or file a statutory report [Sec. 165 (10)]

9. Unless the articles provide for a larger number, only two persons personally

present shall form the quorum in case of a private company, while at least five

member personally present form the quorum in case of a public company (Sec.

174).

10. A director is not required to file consent to act as such with the Registrar.

Similarly, the provisions of the Act regarding undertaking to take up qualification

shares and pay for them are not applicable to directors of a private companies

[Sec. 266 (5) (b)]

11. Provisions in Section 284 regarding removal of directors by the company in

general meeting shall not apply to a life director appointed by a private company

on or before 1st April 1952 [Sec. 284 (1)]

12. In case of a private company, poll can be demanded by one member if not more

than seven members are present, and by two member if not more than seven

member are present. In case of a public company, poll can be demanded by persons

having not less than one-tenth of the total voting power in respect of the resolution

or holding shares on which an aggregate sum of not less than fifty thousand

rupees has been paid-up (Sec. 179).

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13. It need not have more than two directors, while a public company must have at

least three directors (Sec. 252)

b) Privileges available to an independent private company (i.e. one which is not a

subsidiary of a public company)

An independent private company is one which is not a subsidiary of a public

company. The following special privileges and exemptions are available to an

independent private company.

1. It may give financial assistance for purchase of or subscription for shares in the

company itself.

2. It need not, like a public company, offer rights shares to the equity shareholders

of the company.

3. The provisions of Sec. 85 to 90 as to kinds of share capital, new issues of share

capital, voting, issue of shares with disproportionate rights, and termination of

disproportionately excessive rights, do not apply to an independent private

company.

4. A transfer or transferee of shares in an independent private company has no right

of appeal to the Central Government against refusal by the company to register a

transfer of its shares.

5. Sections 171 to 186 relating to general meeting are not applicable to an

independent private company if it makes its own provisions by the Articles. Some

provisions of these Sections are, however made expressly applicable.

6. Many provisions relating to directors of a public company are not applicable to

an independent private company, e.g.

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a) it need not have more than 2 directors.

b) The provisions relating to the appointment, retirement, reappointment,

etc. of directors who are to retire by rotation and the procedure relating,

there to are not applicable to it.

c) The provisions requiring the giving of 14 days’ notice by new candidates

seeking election as directors, as also provisions requiring the Central

Government’s sanction for increasing the number of directors by

amending the Articles or otherwise beyond the maximum fixed in the

Articles, are not applicable to it.

d) The provisions relating to the manner of filing up casual vacancies among

directors and the duration of the period of office of directors and the

requirements that the appointment of directors should be voted on

individually and that the consent of each candidate for directorship should

be filed with the Registrar, do not apply to it.

e) The provisions requiring the holding of a share qualification by directors

and fixing the time within which such qualification is to be acquired and

filing with the Registrar of a declaration of share qualification by each

director are also not applicable to it.

f) It may, by its Articles, Provide special disqualifications for appointment

of directors.

g) It may provide special grounds for vacation of office of a director.

h) Sec. 295 prohibiting loans to directors does not apply to it.

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i) An interested director may participate or vote in Board’s proceedings

relating to his concern of interest in any contract of arrangement.

7. The restrictions as to the number of companies of which a person may be

appointed managing director and the prohibition of such appointment for more

than 5 years at a time, do not apply to it

8. The provisions prohibiting the subscribing for, or purchasing of, shares or

debentures of other companies in the same group do not apply to it.

9. The provisions of Section 409 conferring power on the Central Government to

present change in the Board of directors of a company where in the opinion of

the Central Government such change will be prejudicial to the interest of the

company, do not apply to it.

When a Private company becomes a Public company

A private company shall become a public company in following cases :

i) By default : When it fails to comply with the essential requirements of a private

company provided under Section 3 (1) (iii) Default in complying with the said

three provisions shall disentitle a private company to enjoy certain privileges

(Sec. 43).

ii) A private company which is a subsidiary of another public company shall be

deemed to be a public company.

iii) By provisions of law - Section 43-A.

Section 43-A

a) Where not less than 25% of the paid-up share capital of a private company

is held by one or more bodies” corporate such a private company shall

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become a public company from the data in which such 25% is held by

body corporate [Sec. 43-A (1)]

b) Where the average annual turnover of a private company is not less than

Rs. 10 crores during the relevant period, such a private company shall

become a public company after the expiry of the period of three months

from the last day of the relevant period when the accounts show the said

average annual turnover [Sec. 43 A (1 A)].

c) When a private company holds not less than 25% of the paid up share

capital of a public company the private company shall become a public

company from the date on which the private company holds such 25%

[Sec. 43A (IB)].

d) Where a private company accepts, after an invitation is made by an

advertisement of receiving deposits from the public other than its

members, directors or their relatives, such private company shall become

a public company [Sec. 43A (IC)].

iv) By Conversion : When the private company converts itself into a public

company by altering its Articles in such a manner that they no longer include essential

requirements of a private company under Section 3 (1) (iii). On the data of such

alternations, it shall cease to be private company. It shall comply with the procedure of

converting itself into a public company [Sec. 44].

The Articles of Association of such a public company may continue to have the

three restrictions and may continue to have two directors and less than seven members.

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Within 3 months of such a conversion. Registrar of Companies shall be intimated. The

Registrar shall delete the word ‘Private’ before the words ‘Limited’ in the name of the

company and shall also make necessary alternations in the certificate of incorporation.

III. On the basis of Control

On the basis of control, a company may be classified into :

1. Holding companies, and

2. Subsidiary Company

1. Holding Company [Sec. 4(4)]. A company is known as the holding company

of another company if it has control over the other company. According to Sec 4(4) a

company is deemed to be the holding company of another if, but only if that other is its

subsidiary.

A company may become a holding company of another company in either of the

following three ways :-

a) by holding more than fifty per cent of the normal value of issued equity

capital of the company; or

b) By holding more than fifty per cent of its voting rights; or

c) by securing to itself the right to appoint, the majority of the directors of the

other company , directly or indirectly.

The other company in such a case is known as a “Subsidiary company”. Though

the two companies remain separate legal entities, yet the affairs of both the companies

are managed and controlled by the holding company. A holding company may have any

number of subsidiaries. The annual accounts of the holding company are required to

disclose full information about the subsidiaries.

2. Subsidiary Company. [Sec. 4 (I)]. A company is know as a subsidiary of another

company when its control is exercised by the latter (called holding company) over the

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former called a subsidiary company. Where a company (company S) is subsidiary of

another company (say Company H), the former (Company S) becomes the subsidiary

of the controlling company (company H).

IV. On the basis of Ownership of companies

a) Government Companies. A Company of which not less than 51% of

the paid up capital is held by the Central Government of by State

Government or Government singly or jointly is known as a Government

Company. It includes a company subsidiary to a government company.

The share capital of a government company may be wholly or partly

owned by the government, but it would not make it the agent of the

government . The auditors of the government company are appointed by

the government on the advice of the Comptroller and Auditor General of

India. The Annual Report along with the auditor’s report are placed before

both the House of the parliament. Some of the examples of government

companies are - Mahanagar Telephone Corporation Ltd., National Thermal

Power Corporation Ltd., State Trading Corporation Ltd. Hydroelectric

Power Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine

Tools Ltd. etc.

b) Non-Government Companies. All other companies, except the

Government Companies, are called non-government companies. They

do not satisfy the characteristics of a government company as given

above.

V. On the basis of Nationality of the Company

a) Indian Companies : These companies are registered in India under the

Companies Act. 1956 and have their registered office in India. Nationality of

the members in their case is immaterial.

b) Foreign Companies : It means any company incorporated outside India which

has an established place of business in India [Sec. 591 (I)]. A company has an

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established place of business in India if it has a specified place at which it carries

on business such as an office, store house or other premises with some visible

indication premises. Section 592 to 602 of Companies Act, 1956 contain

provisions applicable to foreign companies functioning in India.

1.6 SUMMARY

Company may be defined as group of persons associated together to achieve

some common objective. A company formed and registered under the Companies Act

has certain special features, which reveal the nature of a company. These characteristics

are also called he advantages of a company because as compared with other business

organizations, these are in fact, beneficial for a company. Companies can be classified

into five categories according to the mode of incorporation on the basis of number of

members, on the basis of control, on the basis of ownership and on the basis of nationality

of the company.

1.7 KEYWORDS

Company: A company means a body of individuals associated together for a common

objective, which may be business for profit or for some charitable purposes.

Registered Company: A registered company is one which is formed and registered

under the Indian Companies Act, 1956 or under any earlier Companies Act in

force in India.

Public Company: A public company means a company which is not a private company.

Any seven or more persons can join hands to form a public company.

Holding Company: A company shall be deemed to be the holding company to another

if that other is its subsidiary.

Unlimited Company: A company not having any limit on the liability of its member is

called an unlimited company.

Step 1

Copay That Link

SERVER 1

https://drive.google.com/open?id=0B9DspBBIUl1NQ3hqenE1cGZlSnc

Server 2

https://drive.google.com/open?id=0B9DspBBIUl1NQ3hqenE1cGZlSnc

Step 22

Please paste that link in your browser.

STEP ##

Please download and preview your file

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