The word company is derivative from the Latin word which is “Panis” which means bread. The word companies means to eat bread together. The company is the creation of the state and possesses legal personality that enables it through its agent representatives to do many of the things that a natural person does. The company is an artificial person and its whole character and life depend on the law that brings it into being. There are various types of companies which are private company, public company, one man company and a foreign company. This topic discusses the many types of companies in detail. A company can be classified on the basis of the mode of incorporation as statutory and legal establishment (registered company) company , on the basis of the number of member’s as private company and public company and on the basis of the liability of member’s as company limited by shares, company limited by gurantee and unlimited company . Many are the others types of companies such as licensed company and illegal company are also discussed in detail in this topic
Companies according to mode of incorporation
A company when incorporated by issuing a charter by the king or by the queen then that company known as charted company. Some of the chartered companies are the east India i.e The East India company, B.B.C ( British Broadcasting Corporation and The Bank of England
Statutory company (Legal Establishment Company):
These companies are formed with the objective of carrying out businesses which are regulating in the interest of the nation as a whole. The reserve bank of India, the unit trust of India and the life insurance corporation of India are the examples of statutory companies. They have been incorporated by special acts which are passed by the legislature. These acts define the powers which are exercised by the companies that’s why these companies are not required to have a Memorandum of Association nor do they have to use the word ” limited” as part of their name. The provisions of their respective acts govern them. Their accounts are audited under the supervision and control of the auditor general of India
Statutory company ( Legal establishment company) :
Registered / incorporated/ legal company
An incorporated / legal company can also be known as registered company. These companies are registered under the Companies Act . That registered companies are further divided into various types. They can be classified either on the basis of the number of member’s or on the basis of the liability of member’s
Companies on the basis of number of members:
A registered company can be classified as a private or a public company on the ground of the numbers of members
Private limited company is detained by limited individuals privately having a separate legal entity. In this, the shareholders cannot trade their shares publicly. It limits there number of shares to 50. In private limited company the shareholders can’t sell their shares without the consent of other shareholders. Private limited is that type of company which restricts the right of its members to transfer its shares and private company doesn’t send the invitation to the public for contribution in its shares. Characteristics of private limited company are mentioned below.
Characteristics of the private limited company
1. Members– To start a private limited company, a minimum 2 number of members are required and a maximum number of 200 members as per the requirements of the companies act 2017.
2. Limited Liability– In the private limited company the liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
3. Perpetual succession– The private limited company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. That characteristics leads to the perpetual succession of the company. The life of the company keeps on existing forever according to this characteristic.
4. Index of members– A private company has a privilege over the public company as they don’t have to keep an index of its members.
5. A number of directors–A private company need to have only two directors. With the existence of 2 directors, a private company can come into operations according to companies act 2017
6. Paid up capital– In the private limited company It must have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
7. Prospectus– In the case of a private limited company, there is no such need to issue a prospectus because in this public is not invited to subscribe for the shares of the company.
8. Minimum subscription– It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
9. Name– The word Private Limited is the compulsory for all the private companies aft.er its name.
In the case, if any private limited company doesn’t follow any characteristics which are mentioned above then the private limited company finishes.
According to section 3 (1)(iv) as amended by the companies (amendment) act 2000 a public company means a company which is not a private company. Seven persons required to run a public company. The basic principle of a public company is that its articles do not contain provisions restricting the number of its members or excluding generally the transfer of its shares to the public or prohibiting any invitation to the public to subscribe for its shares or debentures. Only the shares of a public company are capable of being dealt in on a stock exchange.
In Public company has minimum paid up capital is five lakhs or such higher paid up capital as may be set from time to time. According to the companies act 2000 ” if any public company existing on the date of commencement of this amendment having less than five lakhs paid up capital on the day of commencement then that company shall increase their paid up capital to Five lakhs within a two years period if that company will not increase its paid up capital to Rs five lakh. In case the company fails to develop the paid up capital to Rs five lakh, then the company shall be considered to be a “defunct company” under the section 560 and its name shall be struck off from the register of companies maintained by the registrar companies.
A private company which is a lesser of a public company. By becoming the lesser of a public company the basis characteristic of private company are not altered. The private company is treated as a public company in relation to the other provision of the act but not with the reference to its basis characteristic. All the provision which is mentioned in section 3 (1)(iii) continue govern the affairs of the company even though it is a lesser of a public company
Meeta private limited was a lesser of Geet international Ltd, which was a public limited company. Seeta who was a member of Meeta company, held 50 shares of the company and wanted to transfer her shares to her friend Ruby. Although Meeta’s company by virtue of being a lesser of Geet International, was a public company, its characteristics were still those of a private company. Hence Seeta could not transfer her shares to her friend Ruby.
A company which control the management of another company known as holding company and that company whose management is controlled is called lesser company.
The company as agent:?
The decision in british Thomson-Houston provides enduring authority that in the absence of proof, the company cannot be seen as the agent of those who are sole director and shareholders in order to impose personal liability for tortious conduct. This decision rested very firmly on the Salomon principle to the effect that any agency on the part of the company cannot be inferred from the holding of the office of director or the control of shares . The court stressed the need to establish any agency substantively
Ideally of course such agency would be found in an express agency agreement indeed it was suggested in the court of appeal in ebbw vale U.D.C vs South Wales Traffic Area Licensing Authority that nothing short of express agency will suffice such a position may be useful on those occasions where the court is not prepared to accept any informality affecting corporate arrangement but generally this requirement seems to be rather too extreme . Nevertheless, in the Rainbam case the house of Lords referred to the agreement by which the company there took possession of the land as agent of the promoters, an important factor en route to the finding of strict liability described.
Exemptions and privileges of a private company:
There are certain advantages which a private company has over a public company. In companies act these are called exemption and privileges which the private company enjoyed and they are given below
Privileges and Exemptions to a private Limited Company
Section 70(3) Statement in lieu of prospectus need not be delivered to the registrar before allotting shares (Exemption/privilege under this section is also available to a private company, which is subsidiary of a public company).
Section 77(2) Financial assistance can be given for purchase of or subscribing for its own shares in its holding company.
Section 81(3) Further shares can be issued without passing special resolution or obtaining central government’s approval and without offering the same necessarily to existing shareholders (Exemption/privilege under this section is also available to a private company, which is subsidiary of a public company).
Section 90(2) Provisions as to kinds of share capital (sec.85), further issue of share of capital(sec.86), voting rights(sec 87), issue of shares with disproportionate rights (sec 88) and termination of disproportionate excessive rights (sec 89).
Section 149(7) Business can be commenced immediately on incorporation without obtaining a certificate of a commencement from Registrar (Exemption/privilege under this section is also available to a private company which is subsidiary of a public company).
Section 165(10) It is not necessary to hold a statutory meeting and to send statutory report to shareholders and file the same with Registrar (Exemption/privilege under this section is also available to a private company which is subsidiary of a public company).
Section 170(1) Articles of private company may provide for regulations relating to general meetings without being subject to the provisions of sections 171 to 186.
Section 198(1) Any amount of managerial remuneration can be paid and the same is not restricted to any particular proportion of the net profits.
Section 204(6) Private company can appoint a firm or body corporate to an office or place of profit under the company.
Section 252(2) Private company need not have more than two directors.
Section 255(1) A proportion of directors need not retire every year.
Section 257(2) Statutory notice, etc., is not required for a person to stand for election as a director.
Basic Distinction between Public and Private Ltd. Company
The difference between public and private company can be drawn clearly on the following grounds:
1. The public company mentions to a company that is listed on a recognized stock exchange and traded publicly. A Private Ltd. Is that company which is not listed on a stock exchange and is held privately by the members.
2. There must be at least seven members to start a public company. As compared to the private company can be started with minimum two members.
3. There is no maximum number of members in a public company. On the other hand, a private company can have a maximum of 200 members, subject to certain conditions.
4. A public company should have at least three directors however the Private Ltd. Company can have 2 directors a minimum.
5. In the case of a public company It is compulsory to call a statutory general meeting of members, whereas that type of compulsion is in the case of a private company.
6. In a Public Ltd. Company, there must be at least five members, personally present at the Annual General Meeting (AGM) for creating the mandatory quorum. On the other hand, in the case of a Private Ltd. Company, only 2 members required for AGM
7. The issue of prospectus/statement instead of the prospectus is compulsory in case of a public company, but that type of compulsion is not in case of private company
8. The public company needs a certificate of commencement of business after it is incorporated to start a business. On the other hand, a private company can start its business just after receiving a certificate of incorporation.
9. The transferability of shares of a Pvt. Ltd. company is completely restricted. In the public company, the shareholders of a public company can freely transfer their shares.
10. A public company can invite the general public for subscribing shares of the company. As oppo
Conversion of Private Company into a Public Company
Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of—
A private company into a public company;
Provided that where a company being a private company modifies its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, finish to be a private company
• The Members of that Company shall approve the change of Company into Public Company by Special Resolution.
• Name clause of Memorandum needs to be edited to eliminate the word ‘Private’.
• If that Company has less than 7 members, then that company take proper step should be taken to increase them to at least 7.
• If the number of directors of that Company is two, the number of directors should be increased to at least 3
• Increase the authorized share capital and paid up share capital as set for public company, if required. Presently, for public company minimum capital is not recommended.
• The Articles of that Company shall be suitably modified for the removal of restrictive provisions applicable to a Private Company. It is advisable to adopt a new set of Articles applicable to a Public Company.
• Company has not defaulted in filing of Annual Returns or Financial Statement or any other document due for filing with the Registrar.
• Company has not defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.
• A public company can be converted into private company only after obtaining its shareholder approval by way of passing of special resolution in general meeting.
Therefore we need to file following E-form with Registrar of Companies to convert public company into private company;
MGT-14 (For registering special resolution)
INC-27 (Application for Conversion of Public Company into Private Company).
Board meeting to be held for purpose of conversion,
To discuss and approve proposal of conversion of the Public company into a Private company.
To grant authority to director to take necessary action.
To decide place, venue, time of general Meeting & to approve notice calling General Meeting.
File Form No. MGT-14 within 30 days of passing of the resolution
File Form INC-27 with ROC after approval of MGT-14.
Companies on the basic of the liability of members:
On the basis of liability the company can be classified into:
(i) Companies limited by shares
(ii) Companies limited by guarantee
(iii) Unlimited companies.
1) According to section 464 if any company or association of persons or partnership in which the number of members are more than 50 members and if that company or associations of persons or partnership carries on business for profit if it’s not registered under any act then it will be considered or known as an illegal association.
2) Illegal Association does not have any legal existence which means the following things;
a) That association cannot sue and be sued in the court of Law.
b) That association cannot be wound up because there is nothing to be wind up.
c) That association cannot be dissolved because there is nothing to be dissolve.
3) The liability of all the members of the illegal association is unlimited for all the liabilities of the association.
4) Every person who is a member of an illegal association then that person is liable to pay a fine of Rs.100k.
5)According to the section 453 if any association of person works as private or as public company without registered then they will suffer a fine which is not less than 500 per day and find may be extend to 2000 Rs for the period of default plus unlimited liability of all the persons who work under such association.
6) It is important under section 464 that to call an association illegal, the business must be carried on for profit. If the motive of profit is absent between the then that association can work as a legal association even they have more than 50 members. This implies that section doesn’t apply to charitable, literally, religious, and scientific association, clubs association.
7) Furthermore, section 464 doesn’t apply to chit funds, joint Hindu families, and stock exchanges.
8) The profit off illegal association is subject to income tax.
9) An illegal association remains illegal in spite of the ensuing reduction in its membership till it gets registered.
Companies according to mode of incorporation
Charted company, statutory (legal establishment) company, registered company
Companies on the basis of number of members
Private company, public company
Exemptions and privileges of a private company
Distinction b/w private and public company
Conversion of private into a public company
Conversion of public into private company companies on the basic of the liability of members
Company limited by shares, company limited by guarantee, unlimited company
Other types of companies
One Man Company, foreign company, Government Company, holding company illegal associations
Question 1 Is company is the agent or not?
Question 2 Distinguish between a private company and a public company?
Question 3 what are the exemption’s and privileges of a private company?
Question 4 how a private company converted into a public company?
Question 5 what are various types of other companies on the basis of the liability of the members?
With the era of industrialization of Europe, the formation of business association, partnerships and companies started in England the formation of joint stock Company for trading and other purposes started in the 16th century. The east India Company was formed in the year 1600 in the reign of Queen Elizabeth in the subsequent following English Companies’ act 1844 and Act for registration of joint stock companies was for the first time enacted and enforce in the year 1850
With the emergence of Pakistan on the world map, under the adaption act 1947 the company Act 1913 was adopted as the company law Pakistan. In the 1959 a federal law commission under the chairmanship of I.I. Chandigarh was formed. Later on this commission was reconstituted under the chairmanship of Mr. Sharif Ud Din Pirzada for recommendations of new company law act but unfortunately the recommendation of commission were not followed and the companies act 1913 remain enforce in the companies law ordinance 1984.
This law remains enforceable for 33 years and in 2017 the national assembly and the senate has promulgated in a new The Company Act 2017.
The company is an artificial judicial person having separate legal entity with perpetual succession and common seal. The parent documents under which the affairs of a company are regulated known as Memorandum of association and article of association. The funds collected from the promoters, shareholders and debenture holders to run its financial affairs. The management of the company is run by the board of directors and its decisions are made through special resolutions passed by the board of directors or general resolution passed in annual general meetings. Wherein the final accounts of the company are as approved along with other major decisions