A company is registered in accordance with the Companies Act and is a separate legal entity, distinct from both its shareholders, directors and managers. The liability of the shareholders is limited to the amount paid or unpaid on issued share capital. A company has perpetual existence. The owners and management is separated. The Companies Act, 1956 does, however, place many restrictions on the company for the compliance. It must maintain certain books of accounts, registers, and file an annual return, annual compliance with the registrar of companies which includes the accounts as well as details of directors and mortgages.
There are three types of companies keeping in view their nature, which is outlined below
Companies, where the liability of its members is limited to the extent of amount unpaid on the shares, held by them in the Company. For e.g. A has purchased 10 shares of Rs 10/each and therefore his total liability towards the company is limited only upto Rs 1000. Generally, more than 90% of the companies are incorporated with limited liability.
Company with unlimited liability is just like partnerships, where the liability of partners is unlimited and may extend to their personal assets. In case of such companies, the liability of its member is unlimited for the purpose of all the liabilities. This type of company is generally, not popular form of business organization.
The aforesaid companies are further classified into the following:
The concept of One Person Company [OPC] is a new vehicle/form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business in a corporate Framework.
One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act.
Procedure in brief:
|Applicant's Name||First Name||Middle Name||Last Name|
|Father's Name||First Name||Middle Name||Last Name|
|Date of Birth||Date||Month||Year|
|Place of Birth|
|Phone / Cell Number|
Private Limited Company means a Company formed with the word 'private' in its name and the Articles of Association of whom contains the following restrictions
Private Companies are also relieved from complying a large number of provisions of the Companies Act such as
|Membership||Minimum number of member required is only 2|
|Flexibility in issue of shares||Further shares can be issued without approval of shareholders and Central Government and even without offering to existing shareholders|
|Commencement of Business||Business can be commenced immediately on incorporation and without obtaining certificate of commencement of business|
|Conducting of Statutory meeting||No statutory meeting needs to be conducted|
|Commencement of new business||Company can commence business mentioned in other objects of Memorandum of Association without the approval of Shareholders|
|Directors||Only 2 Directors are required|
|Increase in number of Directors||No, approval of Central Government is required for increase in number of directors beyond 12.|
|Consent of Board of Directors|| No consent of board of directors is required for actions:
|Retirement of Directors||Directors need not retire every year|
|Appointment of Managing or Wholetime Director||No approval of central Government is required for appointment of Managing or Wholetime Director|
|Loan to Directors||Can easily provide loan to Directors without any approval|
|Remuneration to Directors||There is no limit as to the amount of remuneration which can be paid to Directors or managers|
|Participation by interested directors||Interested Directors can also participate and vote on a business, in which he is interested|
|Financing of Purchase||Company can provide financial assistance for purchase or subscription of its own shares|
|Provisions concerning shareholders meetings||Articles of Association of the Company can provide for regulations relating to general meeting without being subject to statutory provisions of the Act.|
|No restriction on inter-corporate investments or loans||There are no restrictions as to the amount that can be given by way of inter-corporate loan or investment|
|Ascertainment of profits and depreciation||Provisions relating to method of ascertainment of profits and ascertainment of depreciation does not applies|
|Restriction on Company Law Board||Company Law Board cannot restrict any change in Board of Directors which can be prejudicial to the Company|
A public company is suitable where the volume of business is large, area of operation is widespread, the risk involved is high and there is a need for huge financial resources and manpower. It is also preferred when there is need for professional management in its operations. In certain businesses like banking and insurance, joint stock company form is the most suitable. Now-a-days, it is preferred form for most areas of business because of the preference for operating on large scale.Steps for formation of a Public company:
The steps for formation of a Public Company is similar to steps foe formation of Private Company
Additional Steps to be taken for formation of a Public Limited Company
|Acts in its own name according to the will of board directors|
|Raises capital through shares|
|Shares its profits among shareholders|
|Benefits of a Public Company:|
Public companies are normally valued higher than private companies
Raising capital requires less time and expense.
Founders suffer less stock dilution when raising capital.
|Making acquisitions with stock is easier and less expensive.|
|Stock and stock options are useful in attracting management.|
|Management and employee stock options have more value.|
|More liquidity for founders, minority shareholders, and investors.|
|Added prestige and visibility with customers, suppliers, employees and the financial community.|
Difficulty of formation:
Delay in decisions:
Lack of secrecy
|Lack of motivation|
Additional Steps to be taken for formation of a Public Limited Compan
For some specific business purposes, Public & Private Companies takes the form of the following:
The Companies has prescribed separate set of provisions for companies which are engaged in activities related to agriculture and all companies registered as per these provisions are called as Producer Company. Producer Company can engage in any of the following activities:
Any ten or more individuals, each of them being a producer or any two or more producer institutions, or a combination of ten or more individuals and producer institutions may form a Producer Company
Producer means a person engaged in any of the activity connected with the following:
Producer Institution means a Producer company or any other institution having only producer or producers or producer company (s) as its member whether incorporated or not and have the objects of producer company and which agrees to make use of services provided in articles of Producer Company.
Following types of companies are called as Non Banking Financial Companies and are regulated as per the regulations prescribed under Non Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998:
Company which is a financial institution carrying on as its principal business the acquisition of securities.
Under the Companies Act, 1956 you can also register a company for carrying on business , not for the purpose of earning profit but to serve mankind at large. Such type of company is generally called as Association not for profit or section 25 Company.
Association not for profit or section 25 companies can only be formed for the purpose with the following objectives
It is necessary to take the approval of Government of India, to form such type of company
Due to their nature of business, the Government of India has relaxed the application of various provisions of the Companies Act on such companies,
|Event||Applicable Sections||e-Forms||Time Limit|
|Appointment/Resignation of Director||303||32||Within 30 days of appointment|
|Increase in Authorized Share Capital||94||5||Within 30 days of passing of the resolution in this behalf.|
|Change in Address of Registered Office||146||18||The return has to be submitted within 30 days of incorporation or change of situation of Registered office.|
|Appointment of Managing director / Whole-time Director / Manager by Public Company||269(2)||25C||Within 90 days from the date of appointment|
|Allotment of Shares on cash||75(1)||2||Return must be submitted within 30 days of allotment of shares<|
|Allotment of shares in consideration other than cash||75(2)||2 & 3||The Return has to be submitted within 30 days of allotment of shares>|
|Taking Secured Loan/Modifying terms of such Secured Loan||125/127||8|| Within 30 days after the date of its creation.
Note: The delay can be condoned for further period of 30 days subject to payment of additional fees
|Issue of Series of Debentures||128 & 129||10||The return has to be filed either by execution of deed or of any debentures of the series, within 30 days of creation of charge.|
|Payment of secured Loan on which charge is created||138||17||The return must be submitted within 30 days of satisfaction or payment of charge. Only payment of secured loan in full has to be registered.|
|In case a public company wants to carry on business mentioned in other objects clause of Memorandum of Association||149(2A)||20A||Before commencement of new business, the declaration has to be submitted.|
|Filing of Statutory Report (in case of Public Company only)||165||22||The report must be submitted immediately after sending the same to members preferably within 7 days of the date of report.|
|On passing of Special Resolution||192||23||Return has to be submitted within 30 days of passing the resolution|
|Appointment of Managing Director by Board of Directors||192||23||Return has to be submitted within 30 days of appointment|
|To keep books of accounts at a place other than its registered office||209(1)||23AA||Notice has to be submitted within 7 days of the Board's decision.|
|For conversion of a Public Company into a Private Company.||31(1)||1B||Within three months from the date when the special resolution has been passed in this regard.|
Annual Fillings are those fillings which are require to be done each calendar year with the Registrar of Companies, irrespective of whether the Company is carrying on any business or not, the various annual fillings are outlined below:
Following statutory registers are required to be maintained in compliance of various provisions of the Companies Act, 1956
Books of Accounts
Every Company has to maintain the necessary accounting records at his registered office in respect of the following:
All sums of money received and expended by the Company and the matters in respect of which the expenditure and receipt takes place. All Assets and Purchases of goods by the Company Assets and liabilities of the Company In case of companies engaged in class of companies engaged in production, processing, manufacturing or mining, activities, such particulars relating to utilization of material or labour or to such other items of costs as may be prescribed by Central Government.
The company can also keep these books of accounts at any other place in India by filling eform 23AA with Registrar of Companies within 7 days of decision.
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