Category: Company law

Types of Companies under Companies Act, 2013
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This article is written by Aaditya Kapoor, a law-aspiring student of Vivekananda Institute of Professional Studies. Through his research, Aaditya strived to shed light on the various types of companies that have been prescribed under the Companies Act, 2013, along with their functioning that has also been laid down within the act. INTRODUCTION In a world that swiftly nudges itself further and further towards industrialization, the corporate sector is perhaps the most vital element of what holds together a nation’s economy – and India is no exception. According to the Indian Companies Act, 2013, a company has been defined as an association registered with the Registrar of Companies, in which the association itself is an artificial legal person possessing an independent, legal entity and a common capital containing transferable shares.A company can be more vividly described as a business entity acting as a legal person, formed by a single or a group of legal persons to felicitate business. It isn’t a requirement of necessity for there to be a group of persons involved in the formation of a company, as it is possible and plausible now for one person to do the same – as long as the aforementioned legal person is recognized by law as someone with certain legal rights and obligations. To avoid and derail an illegal entity from forming a company, the Companies Act, 2013 has also prescribed the various types of companies that can be formed, with certain guidelines attached to the formation of each. This article shall reflect light on each type of company, by segregating them into four major sub-categories: Companies on the basis of Incorporation Companies formed on the basis of sharing of liability Companies formed on the basis of exercising control Companies formed on the basis of number of members(or transferability of shares) Other classifications While each classification is different in itself, there are a few factors that remain constant while scrutinizing the company’s applicability within the Companies Act, 2013.  1. CLASSIFICATION BY MODE OF INCORPORATION  On the basis of incorporation, companies are categorized into:i) Registered Companies: Such companies only come into existence after they register themselves under the act, followed by the Registrar of Companies passing the Certificate of Incorporation. This process is to formally induct them into registrants within the Companies Act, as per government regulations.  ii) Statutory Companies: The companies in this category are formed by the passing of a special act, by either the Parliament itself, or by Central or State Legislation.  A company formed under the aforementioned classification is independent and administers control over a specified are. The reason for its formation is to carry out the business of national importance. An example of this is the Reserve Bank of India that was formed under the RBI Act of 1934.  iii) Royal-Chartered Company – While such classification of companies is scarce within the present scenario, a royal-chartered company is formed by special order of a monarch. A prime example of such a company is the East India Company. 2. CLASSIFICATION BASED ON LIABILITY OF THE MEMBERS i) Companies Limited by Shares: A company within this category has a defined share capital with its members sharing limited liability to the value of shares subscribed by them. This essentially means that the individual liability of members is limited to the value of shares held by them.  ii) Companies Limited by Guarantee: Such a company is one that has the liability of its members limited by the memorandum to any amount of money that the members may have to pay in return of the assets of the company, in the event of it being wound up. It’s arbitrary for these companies to have or not have a share capital. iii) Companies with unlimited liability: Such A company which does not have any limit on the liability of its members can be considered as a company with unlimited liability. Therefore, the company is not restricted to the amount of money that members or shareholders have to pay in the event of liquidation.  3. CLASSIFICATION BASED ON CONTROL i) Holding and Subsidiary Companies: A company shall be deemed to be a holding company of another, if that other company is a subsidiary of the prior company; whereas a company shall be considered as a subsidiary of another company if the other company issues control to its Board of Directors, holds more than half of nominal value of equity share capital and if it holds more than 50% of the total voting rights of the company.  ii) Associate Companies: If a company happens to be influenced by non-subsidiary companies, and has control over the total share capital of at least 20%, it can be classified as an associate company. 4. CLASSIFICATION BASED ON THE NUMBER OF MEMBERS i) Public Company: A company with its ownership open to the public can be classified as a public company. There are no restrictions to the number of members or to the transferability of shares of a public company. However, in India, a public company is required to have at least 7 members and 3 directors and must issue prospectus with the Registrar of Companies before selling its shares.  ii) Private Company: Contrary to the aforementioned classification of company, a private company cannot be owned by the public and has a restricted number of members; therefore, the right to transfer its shares is also limited. In India, a Private Company has a legal identity of its own, and possesses a company name, an address, with at least two directors, amongst which one has to be an Indian Resident.  ii) One-person Company: As the name suggests, a company having only one founder/promoter can be categorized as a one-person company. Such type of company still has all provisions of a legal company and the owner can run the company on his own as long as all legal requirements are fulfilled. The founder has to be a natural person residing within the country that governs provisions related to his company. 5.Read More

Company Meetings: Procedure and Types
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This article has been written by Mansi Tyagi, a student at Symbiosis Law School, Pune. In this article, taking cognizance of the different sections of the Companies Act’ 1956, she has discussed the procedure and steps concerning a company meeting and the different types of company meetings. What is a Company Meeting? Generally, a meeting can be defined as “a gathering, assembling or coming together of two or more persons for the objective of discussing lawful business. Companies Act, 1956, nowhere defines a meeting. But, if we are to further define a company meeting on the pretext of the meaning of a meeting, then it is this gathering whose participants are the members of a company, a meeting is often a formal setting. For any company meeting to take place, it is important that there is a quorum of members who come together on a previous notice for discussing a lawful common business interest. Therefore we can conclude requisites for a valid company meeting as: Two or more than two members; With an objective of the meeting – discussion on common business interests; Through a previous notice; At a particular place, date and time; As per the provisions of the Companies’ Act. However, it is important to note that in a few exceptional cases one member meetings are also declared to be valid. For example, where there is only a single shareholder in a company, he can alone hold a valid meeting. On similar lines, this goes for situations where there is a single creditor or board of director for the company. Except for these exceptions, the requisites cannot be compromised with. What is the Procedure for any company meeting? For any company meeting to validly happen it is important that the procedure laid down by the Companies’ Act is followed. Section 170 of the Companies Act’ 1956 states that the forthcoming sections i.e. Sections 171-186 shall apply to every general meeting of any public or private company. These steps can be briefly enlisted as: Notice (Sections 171-173) A Quorum (Section 174) A Chairman (Section 175) Proxies (Section 176) Voting procedure (Sections 177, 179-185) Result (Section 178) Power of Tribunal to call a meeting (Section 186) Thus, now we will read into the detailed requirements of each step for a general meeting: 1. Notice Notice prior to the meeting is the most important prerequisite for any meeting. Section 171 lays down that a notice is to be served to the joining members of a meeting twenty one days prior to such meeting. However the same can be reduced at the admissal of the members to such modification. Every notice by virtue of Section 172 of the act shall specify the itinerary of the meeting including the agenda for the meeting. These notices shall be served in writing to all the members of the company at their residences. Also in case any member’s death or insolvency, the same shall be addressed to the person entitled to such member’s shares. Section 173 requires such notices to be annexed with an explanatory note concerning the ‘special’ business to be discussed in the meeting. However, in case a member is ‘accidentally’ omitted this serving of notice, the meeting shall not get invalidated ipso facto. 2. Quorum and Chairman Section 174 of the act constitutes a quorum of five persons in case of a public company and two when it is any other company. If within half an hour of the commencement of the meeting there is no quorum constituted, it will dissolve the meeting arranged for. Likewise, section 175 of the act lays down the requirement of a chairman for the meeting. The members present shall elect a chairman for the forthcoming meeting. This election shall be a simple show of hands. Once a member is thereof elected, he acts as the chairman for the whole meeting. 3. Proxies Every member by virtue of section 176 of the act is empowered to appoint any other person as his proxy for the meeting. However, such proxy’s powers are limited to voting on polls. He at no instance can speak his opinion at the meeting. Also, such empowerment is prohibited in case of companies with no share capital. Likewise, members of private companies are limited to use only one proxy per occasion. The member appointing any proxy has to provide a duly signed written proxy authorizing the proxy to vote in his place and be deposited to the company before forty-eight business hours of such meeting. 4. Voting In case of companies with share capital, any member or proxy present in person can ask for voting on a particular motion; which the same section 179 lays that in companies with no share capital, one member or a proxy in presence of less than total seven members and two members or a proxy in presence of more than total seven members can ask for the voting initiation. After such demand is made under section 179, there shall be a polling procedure by show of hands by virtue of section 177. The Chairman shall then state conclusively if the resolution was to be carried out. The same is to be noted down in the minutes’ book of the company as per section 178. However, section 183 lays down that there is no hard and fast rule for the members or the proxies to use their multiple votes in the same manner. Later, section 180 lays down that in case of a decision on adjournment the polling shall be conducted instantaneously once asked for, while in any other cases such polling shall be conducted within forty-eight hours of such demand.  Section 181 and 182 on the other hand put restrictions on these polling rights of the members. Through the former, the company can restrict the defaulter members from voting who are yet to pay on their shares or when their shares are under a right of lien by the company; while through the latter the company can restrictRead More

Corporate Securities – Classification
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This Article is written by Aditya Das pursuing B.Com LLB (Hons.) 2nd Year from NEF Law College, Guwahati, Assam. In this article, he has tried to explain the Classification of Company Securities and the allotment and transfer of securities. INTRODUCTION In laymen’s language Securities refers to an investment made by an individual that is to be freely traded in the market (share market) and provides a right or claim on an asset of the issuing company and all future cash flows generated by that asset. In Legal language as per Securities Contracts Regulation Act, 1956, “securities include shares, scripts, stocks, bonds, debentures, debenture, stocks or other marketable securities of a like nature in or of any incorporated company or other body corporate.”[1] Company Securities Company or corporate securities are the documentary media for mobilizing funds by joint-stock companies. The main motive of the company to issue such securities arises in the following two situations: Establishment of the business –at the initial stage. Growth of business – expansion (sudden flow of funds). These are of two classes: (a) Ownership securities, and (b) Creditorship securities. Share Capital:  Company Securities (Shares) – Share capital is not a necessary condition of incorporation, also a greater number of Companies are registered with it than without it. In case share capital is thought necessary[2], the memorandum of the company under the Companies Act 2013 must state the amount of capital with which the company is desired to be registered and the number of shares into which it is to be divided.[3] The authorised share capital for the nominal capital means such capital is authorised by the memorandum of a company. Section 2(8) The meaning of share capital was explained by the Kerala High Court in SNDP Yogam, Quilon, re:[4] Under this case an application was presented under section 397 of the Companies Act 1956 against “yogam” the raised question was whether the company was with or without share capital. Despite the memorandum of the association the liability of the members was limited and each member what’s required to take at least one share, but there was no authorised capital mentioned.[5] Classification Capital must be divided into shares of a fixed amount and all the shares may be of only one class for may be divided into two different classes of securities. For this purpose securities means securities defined in Section 2 (h), Securities Contracts (Regulation)Act,1956 Section 2(81) and includes “hybrids”. The act permits only two kinds of shares that are to be issued : 1.Equity share capital, 2.Preference shares The Companies Act 2000 introduced some other categories of share:    I. Derivative includes— 1.  security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; 2. a contract which derives its value from the prices, or index of prices, of underlying securities;    II. Hybrid – it means any security which has the characteristics of more than one type of security including their derivatives. 1. Equity Share Capital:  As per the Companies Act, 2013 all share capital which is not preference share capital is called Equity share capital. Equity shareholders are those shareholders who are paid after the payment of preference shareholders. Even on the winding up of the company equity shareholders or to be said the ordinary shareholders are paid at last after the settlement of the preference shareholders is completed. Equity shares were proposed to be issued against preference share on the ground that no dividend was paid. There was no material to show that equity shares represented the fair value of dividend claimed. The court cancelled the proposal.[6] [7] 2. Preference Share Capital ( Section 43) : Preference share capital which fulfils the following conditions- During the lifetime of the company, it is assumed of payment of dividend at a fixed rate for a fixed amount before anything is paid to equity shareholders. The preferential dividend may consist of a fixed amount for example rupees 70000 in one year payable to the preference shareholder to be calculated at a fixed rate for example 7% of the nominal value per share. In the event of winding up of the company, it carries a preferential right to be repaired the amount of capital paid up before anything is paid to equity shareholders. Types Cumulative and non-cumulative Cumulative preference shareholders have the rights to receive a dividend that was have been missed in the past that goes on accumulating unless it is paid. If there are no profits in one year and the arrears of the dividend are to be carried forward and paid out of the profits of subsequent years the preference shares are said to be cumulative. Whereas in case of non-cumulative preference shares the shareholders get nothing if no profit is available in any near moreover one cannot claim unpaid dividend in any subsequent year. Foster v Coles, Foster and Sons Ltd.[8] Participating and non-participating: In case the company makes a surplus profit in a given year the participating preference shareholders have the right to participate in the surplus profit after the dividend has been paid to equity shareholders vice versa in case of non-participating.Will v United Lanket Plantations Co Ltd.[9] Redeemable and non- redeemable: Under the Companies Act, 2013 a company has the power under Section 55 to issue share known as redeemable preference shares in the articles of the company may choose to pay the holders of such shares the pain back of these is referred to as redemption but there are also restrictions in regard to the fund out of the shares that are to be redeemed. Redeemed shares must be fully paid. The redemption must be made from the profit. A sum equal to the amount paid on redemption shall be transferred to a reserve fund to be known as capital redemption reserve account. Whereas, according to Section 55 of the Companies Act 2013 no company can issue any irredeemable preference share. Allotment of securities The allotmentRead More

CLASSIFICATION OF COMPANY SECURITIES
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This article is written by Alok Kumar, a student at Maharaja Agrasen Institute of Management Studies, GGSIPU. This article basically deals with the topic of classification of corporate securities which includes the definition of securities according to the security contract act, 1956 and their various types. WHAT IS SECURITIES? Security, in business economics, written evidence of ownership conferring the right to receive property not currently in possession of the holder. The most common types of securities are stocks and bonds, of which there are many particular kinds designed to meet specialized needs. If we talk about kinds of securities then there are various types of securities available other than stocks and bonds Basically Securities allude to an investment that can be unreservedly traded in the market and gives a privilege or guarantee on an asset and all future cash flows produced by that asset. ACCORDING TO SECTION 2(H) OF SECURITIES CONTRACT (REGULATION) ACT, 1956 : SECURITIES INCLUDE – shares, scrip’s, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. CLASSIFICATION OF SECURITIES Securities can be divided into government securities and corporate securities on the basis of source of the issue. CLASSIFICATION OF COMPANY SECURITIES CORPORATE SECURITIES Organizations issue various kinds of shares to clean up assets from different investors. Before Companies Act, 1956 public companies used to give three sorts of shares, for example, preference Shares, Ordinary Shares and Deferred Shares. The Companies Act, 1956 has restricted the kind of shares to just two-Preference share and Equity Shares. EQUITY SHARE Equity shares, otherwise called ordinary shares or common shares speak to the proprietors’ capital in an organization. The holders of these shares are the genuine proprietors of the organization. They have a command over the working of the organization. Equity shareholders are delivered a profit in the wake of paying it to the preference shareholders. The pace of profit on these shares relies on the benefits of the organization. PREFERENCE SHARES As the name proposes, these shares have certain preferences when contrasted with a different type of shares. These shares are given two preferences. There is a preference for installment of profit. At whatever point the organization has distributable benefits, the profit is first paid on preference share capital. Different investors are delivered dividend just out of the rest of the benefits, assuming any. The second preference for these shares is the reimbursement of capital at the hour of liquidation of the organization. In the wake of paying outside loan bosses, preference share capital is returned. Equity shareholders will be covered just when preference share capital is returned. DEFERRED SHARES These shares were prior given to promoters or founders for administrations rendered to the organization. These offers were known as Founders Shares since they were ordinarily given to founders. These shares rank last so far as an installment of dividend and return of capital is concerned. Preference shares and equity shares have needed as to instalment of dividend. These shares were by and large of a little division and the administration of the organization stayed in their grasp by temperance of their voting rights. These shareholders attempted to deal with the organization with proficiency and economy since they got dividend just finally. NO PAR STOCK/SHARES No par stock methods shares having no assumed worth. The capital of an organization giving such shares is partitioned into various determined shares with no particular category. The share endorsement of the organization basically expresses the number of shares held by its proprietor without referencing any presumptive worth. The estimation of a share can be controlled by partitioning the genuine total assets of the organization with the absolute number of shares of the organization. Dividend on such shares is paid per share and not as a level of fixed ostensible estimation of shares. SHARES WITH DIFFERENTIAL RIGHTS “Shares with differential rights” means that shares issued with differential rights in accordance with section 86 of the Companies Act. Section 86 of the companies Act, as amended by the Companies (Amendment) Act, 2000, provides that the new issue of share capital of a company limited by shares basically of two kinds namely: EQUITY SHARE CAPITAL With voting rights, With differential rights as to dividend, casting a ballot or in any case as per such rules and subject to such conditions as might be recommended. PREFERENCE SHARE CAPITAL Sub-clauses (i) and (ii) in clause (a) above were inserted by the Companies (Amendment) Act, 2000 which came into effect on 13th December 2000. Subsequently, section 88 of the Companies Act was precluded which restricted issue of equity shares to unbalanced rights. Nonetheless, it must be noticed that the issue of shares with differential rights as allowed by the Companies (Amendment) Act, 2000 is associated with equity shares just and not the preference shares. SWEAT EQUITY The term ‘sweat equity’ signifies equity shares gave by an organization to its employees or chiefs at a markdown or for thought other than money for giving ability or making accessible rights in the idea of intellectual property rights (state, patent or copyright) or worth increments, by whatever name called. The thought behind the issue of sweat equity is that a representative or executive works best when he has ‘feeling of belongingness’ and is plentifully remunerated. One of the methods of rewarding him is by offering him portions of the organization at low costs, where he is working. It is named as ‘sweat equity’ as it is earned by difficult work (sweat) of employees and it is likewise alluded to as ‘sweat equity’ as employees become upbeat on the issue of such offers. The reason for sweat equity is to guarantee more dedication and support of employees. DEBENTURES OR BONDS An organization may raise long haul account through public borrowings. These advances are raised by the issue of debentures. A debenture is an affirmation of a debt. As per Thomas Evelyn. “A debenture is a record under the organization’sRead More

Incorporation of Company- How and Why?
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This post is written by Anushree Tadge, 3rd year law student of ILS Law College, Pune, she tries to explain briefly what are the different kinds of business structure, how one can incorporate and why doing so will be beneficial. Introduction With the rise in entrepreneurship throughout India the efforts for creating more awareness for structuring businesses has to be made. People are expected to incorporate their companies under the Companies Act, 2013 and follow guidelines of Companies (Incorporation) Rules, 2014. The business structure one chooses affects the risk taken by a particular person and leads to difficult paperwork. Incorporation of a company not only guarantees one’s personal assets in cases of financial problems, but it also offers other benefits too. Types of Companies Before registering a company, one has to carefully choose amongst the different business structures briefly explained below. Sole proprietorship It is the easiest and cost-efficient system of having a business in India. If a particular individual owns as well as manages the company without much external help then this type of structure is called ‘Sole proprietorship’, for example, small traders and even shop owners. One-person company (OPC) This is very similar to sole-proprietorship, whereby a single person could start the business. Now there is no actual distinction between the owner and his business in the case of a sole proprietorship, although his type of company helps a person protect his assets more and limit his liabilities. This means all personal belongings & accounts (banks) are protected from financial/ business losses that are likely or unlikely to occur. Private limited company This is the most common type of business taking place in India. 93% of companies are registered as a ‘private limited company’. This kind of structure needs a minimum of two shareholders & directors. People who tend to initiate with startups but have expansion plans in the near future choose this particular structure.  Limited Liability Partnership (LLP) LLP is a popular form of business structure for areas like ‘consulting services’ and ‘professional firms’. In this form, partners have some limited liability on one individual basis and a reduced compliance burden than of a private limited company. Procedure for incorporation of company By virtue of the SPICe form (the new company incorporation form) launched since 15th  February 2020, The Ministry of Corporate Affairs plans to reduce the time as well as the cost it takes for a person to register a company. It is comparatively a convenient process than the previous one. Conventionally to incorporate a company following steps were to be followed- Under the Companies Act, 2013 following steps for incorporation are to be followed- • Firstly, in order of suitability, one name upto a maximum of six names, (showing the main functions/ objects). • One has to make sure that name does not look similar to or resemble the name of any other already established company by using the services of checking name availability  • Apply to the concerned Registrar of Companies (RoC) and subsequently an eForm1 A is to be filled by logging in to the website. A nominal fee of Rs. 500 is to be paid and the digital signature of the applicant has to be noted. • Once the name of the company is approved, applicants can successfully apply for registration now. This has to be done within 60 days of name approval. The registration procedure starts with the filing of Forms –  1, 18, 32.  It is followed by the drafting of the ‘memorandum’ and articles of association by the solicitors, vetting and printing of the same RoC. The memorandum has to be duly signed and appropriate stamp duty is to be paid. The memorandum and articles, both should be signed and witnessed. Please confirm that the memorandum is post-dated. Again, the portal should be logged into and forms are to be filled (names of which are provided below) and mandatory documents are to be attached- Form 1 which is the Declaration of Compliance. Form-18 which is the Notice of situation of RoC  Form-32 which is the Particulars of the Director(s), Manager or the Secretary After successfully submitting the above-mentioned forms, attach the digital signature, complete the payment of filing and registration fees. After the form is successfully processed and completed, the Corporate Identity is generated in order to obtain the ‘Certificate of Incorporation’ from the Registrar of Companies. The company incorporation procedure using SPICe With SPICe Form INC-32, incorporating a startup takes not more than two days. 1. Apply for Director Identification Number (DIN) The first step is the application for DIN, it is an eight-digit number, provided by the Ministry of Corporate Affairs (MCA). Now, this number is person-specific and unique. So if one is to hold the directorship of two companies, another DIN for the other company is not required. Proof of Identity and Address Proof are the necessary requirements for DIN Application. In case of a new company, application through the SPICe form (Simplified Proforma for Incorporating Company Electronically) is possible 2. Submission of Digital Signature Certificate (DSC) It is of similar standards to a handwritten signature, DSC authorises the holder to: Extract business-related information. Sign some selected documents digitally. 3. Register on the MCA Portal and avail facility of SPICe The Ministry of Corporate Affairs has made the procedure very convenient with the introduction of SPICe Form INC-32. SPICe is a one-way destination for the application, for reservation of name and for the incorporation of a company. The form is easy and accessible, a person can read and fill it accordingly, also attach documents and the process will finish within two days. 4. Receive Certificate of Incorporation Once the process is completed and the company is successfully registered, The Ministry of Corporate Affairs issues the ‘Certificate of Incorporation’ with a unique ‘Corporate Identity Number (CIN)’. This certificate is the only document which proves a company’s registration with the Registrar of Companies (RoC). After the successful incorporation of the company, a PAN and TAN (for TDS filing) both areRead More