Company is defined as the group of people working together to accomplish a common goal or

objective. Its main features are that it is created by law, has a separate legal entity, with limited
liability, having perpetual succession, with transferability of shares, having common seal and which
can be sued under the law in the event of breach of contract. It is also found with one man
company feature having one person’s dominating role. It is managed and controlled by the
proprietor of the company.

Definition of a company: The term 'company' means a group of people working together for some
common object or objects. The purpose for such group to associate are different but the term
'company' is normally set aside for those linked with economic purpose means to work for the
profit motive. The term company as defined by Lord Justice Lindley as follows: "By a company is
meant an association of many persons who contribute money or money worth to a common stock
and employ it in some trade or business, and who share the profit and loss (as the case may be)
arising there from, The common stock so contributed is denoted in money and is the capital of the
company. The persons who contribute it, or to whom it belongs, are called members. The
proportion of capital to which each member is entitled is his share. Shares are always transferable
although the right to transfer them is often more or less restricted

Chartered Company: - A chartered company is a company, which is, establish under a special charter
issued by the head of the state i.e. the king or queen. British East Indian Company is an example of
such company. In India, such types of companies do not exist.

2.      Statutory Company: - A statutory company is formed under a special Act or statute passed by
legislature [parliament] of the country. Such companies are subject to the provisions of special act.
The R.B.I & U.T.I are some of examples.

ON THE BASIS OF LIABILITY

3.      Company limited by Shares: - In this type of company, the liability of the members is limited to the
extent of the unpaid value on shares.

4.      Unlimited Company: - In this type of company, the liability of the members is unlimited. They are
not found in India due to risk involved at the time of winding up.

ON THE BASIS OF OWNERSHIP

5.      Government Company: -It is that type of company in which not less than 51% of the paid up capital
is contributed by the government i.e. central and/or state government[s].

6.      Non-Government Company: -Such companies are owned by private parties and government is not
involved. Most of the joint stock companies in India belong to this category.

ON THE BASIS OF NUMBER OF MEMBERS

7.      Public Limited Company: -A companies which are owned, managed and controlled by government
on behalf of people are known as public limited company. A public limited company must have
minimum 7 members and maximum number of member is unlimited. After getting certificate of
incorporation and trading certificate. It must hold statutory meeting.
8.      Private Limited Company: - A companies, which are owned, managed and controlled by private
organizations, are called private limited company. A private limited company must have minimum 2
members and maximum number of member is 50. It can start its business after getting certificate of
incorporation. It need not have to hold statutory meeting.

ON THE BASIS OF CONTROL

9.      Holding Company: - A holding company controls some other company by holding a majority of
shares or by controlling the composition of the board of that company.

10.  Subsidiary Company: - It is that company which is controlled by another company i.e. by the
holding company.

(i) "company" means a company formed and registered under this Act or an existing company as defined in
clause (ii);

(ii) "existing company" means a company formed and registered under any of the previous companies laws
specified below:

(a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866) and
repealed by the Act;

(b) the Indian Companies Act, 1866 (10 of 1866);

(c) the Indian Companies Act, 1882 (6 of 1882);

(d) the Indian Companies Act, 1913 (7 of 1933);

(e) the Registration of Transferred Companies Ordinance 1942 (54 of 1942); and
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[(f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force-

(1) in the merged territories or in a Part B State (other than the State of Jammu and Kashmir), or any part
thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or

(2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and
Kashmir (Extension of Laws) Act, 1956 (62 of 1956), 2[in so far as banking, insurance and financial
corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu and
Kashmir) Act, 1968 (25 of 1968) insofar as other corporations are concerned];] and
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[(g) the Portugese Commercial Code 4[***], in so far as it relates to "sociedades anonimas";]

(iii) "private company" 5[means a company which has a minimum paid-up capital of one lakh rupees or such
higher paid-up capital as may be prescribed, and by its articles,-]

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not including-

(i) persons who are in the employment of the company, and

(ii) persons who, having been formerly in the employment of the company, were members of the company while
in that employment and have continued to be members after the employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;
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[(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their
relatives:]

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the
purposes of this definition, be treated as a single member;
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[(iv) "public company" means a company which-

(a) is not a private company;

(b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed;

(c) is a private company which is a subsidiary of a company which is not a private company.]

(2) Unless the context otherwise requires, the following companies shall not be included within the scope of any
of the expressions defined in clauses (i) to (iv) of sub-section (1), and such companies shall be deemed, for the
purposes of this Act, to have been formed and registered outside India:-

(a) a company the registered office whereof is in Burma, Aden or Pakistan and which immediately before the
separation of that country from India was a company as defined in clause (i) of sub-section (1);
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[***]

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[(3) Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a
paid-up capital of less than one lakh rupees, shall, within a period of two years from such commencement,
enhance its paid-up capital to one lakh rupees.

(4) Every public company, existing on the commencement of the Companies (Amendment) Act, 2000, with a
paid-up capital of less than five lakh rupees, shall within a period of two years from such commencement,
enhance its paid-up capital to five lakh rupees.

(5) Where a private company or a public company fails to enhance its paid-up capital in the manner specified in
sub-section (3) or sub-section (4), such company shall be deemed to be a defunct company within the meaning
of section 560 and its name shall be struck off from the register by the Registrar.

(6) A company registered under section 25 before or after the commencement of Companies (Amendment) Act,
2000 shall not be required to have minimum paid-up capital

4. Meaning of "holding company" and "subsidiary"

(1) For the purposes of this Act, a company shall, subject to the provisions of subsection (3), be deemed to be a
subsidiary of another if, but only if,-

(a) that other controls the composition of its Board of directors; or

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(b) that other-

(i) where the first-mentioned company is an existing company in respect of which the holders of preference
shares issued before the commencement of this Act have the same voting rights in all respects as the holders of
equity shares, exercises or controls more than half of the total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its
equity share capital; or]

(c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary.

Illustration

Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a

subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of Company C, Company
D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above; and
so on.

(2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be
controlled by another company if, but only if, that other company by the exercise of some power exercisable by
it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of
all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed
to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that
is to say:-

(a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a
power as aforesaid;

(b) that a person's appointment thereto follows necessarily from his appointment as director 2[***] or manager
of, or to any other office or employment in, that other company; or
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[(c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof.]

(3) In determining whether one company is a subsidiary of another,-

(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not
held or exercisable by it;

(b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable-

(i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary
capacity); or

(ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only
in a fiduciary capacity, shall be treated as held or exercisable by that other company;

(c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-
mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded;

(d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary [not being held or
exercisable as mentioned in clause (c)] shall be treated as not held, or exercisable by that other, if the ordinary
business of that other or its subsidiary as the case may be, includes the lending of money and the shares are held
or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in
the ordinary course of that business.

(4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only
if, that other is its subsidiary.

(5) In this section, the expression "company" includes any body corporate, and the expression "equity share
capital" has the same meaning as in sub-section (2) of section 85.

(6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding
company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding
company of the body corporate within the meaning and for the purposes of this Act also, whether the
requirements of this section are fulfilled or not.
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[(7) A private company, being a subsidiary of a body corporate incorporated outside India, which, if
incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the
purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is
not held by that body corporate whether alone or together with one or more other bodies corporate incorporated
outside India.]

Conversion of a Private Company into a Public Company

The conversion of the private company into a public company is by choice under Section 44 of
the Companies Act, 1956.
The following steps are required to be taken for such conversion:
(i) Board must fix the date for General Meeting for the purpose of making necessary
alternation in the Articles of Association and Memorandum of Association.
(ii) Hold the General Meeting and pass a special resolution altering the articles in such a
manner that they no longer include the provisions of Section 3(1) (iii) which are required
to be included in the articles of a company in order to constitute it a private company.
The company ceases to be a private company from the date of alteration. The articles
are required to be altered so as to bring there in line with the provisions of the Act as
applicable to public company.
(iii) Special resolution to change the name of the company, so as to delete the word 'private'
from the name of the company and to alter the Memorandum of Association for that
purpose
(iv) File copies of the special resolution and prospectus or statement in lieu of prospectus
within 30 days from the date of general meeting and obtain a fresh certificate of
incorporation (deleting word 'private' in the name of the company) from Registrar of
Companies.
(v) The company must ensure the minimum number i.e atleast 7.

A private company which has been constituted under Section 3(1) (iii) has the following
characteristics:
minimum 2 members
maximum 50, excluding employees and ex-employees who had become members when
they were employees
minimum 2 directors
with restrictions on transferability of shares
restrained from inviting public for share capital and from issuing prospectus
with minimum paid up capital of Rs.1 lakh
prohibited from accepting deposits from persons other than its members, directors and
their relatives.
Some other
Distinction Between A Public Company And a Private Company – Following are the main
points of difference between a Public Company and a Private Company :-

1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must

have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a
minimum paid-up capital of Rs. 5,00,000.

2. Minimum number of members : Minimum number of members required to form a

private company is 2, whereas a Public Company requires atleast 7 members.

3. Maximum number of members : Maximum number of members in a Private Company is

restricted to 50, there is no restriction of maximum number of members in a Public Company.

4. Transerferability of shares : There is complete restriction on the transferability of the

shares of a Private Company through its Articles of Association , whereas there is no
restriction on the transferability of the shares of a Public company

5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for
subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public
Company is free to invite public for subscription i.e., a Public Company can issue a
Prospectus.

6. Number of Directors : A Private Company may have 2 directors to manage the affairs of
the company, whereas a Public Company must have atleast 3 directors.

7. Consent of the directors : There is no need to give the consent by the directors of a
Private Company, whereas the Directors of a Public Company must have file with the
Registrar a consent to act as Director of the company.

8. Qualification shares : The Directors of a Private Company need not sign an undertaking
to acquire the qualification shares, whereas the Directors of a Public Company are required to
sign an undertaking to acquire the qualification shares of the public Company .

9. Commencement of Business : A Private Company can commence its business

immediately after its incorporation, whereas a Private Company cannot start its business until
a Certificate to commencement of business is issued to it.

10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid
shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares.

11. Further issue of shares : A Private Company need not offer the further issue of shares to
its existing share – holders, whereas a Public Company has to offer the further issue of shares
to its existing share – holders as right shares. Further issue of shares can only be offer to the
general public with the approval of the existing share – holders in the general meeting of the
share – holders only.

12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting
of the member, whereas of Public Company must call its statutory Meeting and file Statutory
Report with the Register of Companies.
13. Quorum : The quorum in the case of a Private Company is TWO members present
personally, whereas in the case of a Public Company FIVE members must be present
personally to constitute quorum. However, the Articles of Association may provide and
number of members more than the required under the Act.

14. Managerial remuneration : Total managerial remuneration in the case of a Public

Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum
of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.

15. Special privileges : A Private Company enjoys some special privileges, which are not
available to a Public Company.

Both private and public companies are regulated by the provisions of the Companies act,
1956. However certain provisions of the Act do not apply to a private company. These are the
privileges which private company enjoys over the public company under the act. They are
summarized below:

1) The minimum number of members in a private company can be two only as against seven
in a public company.
2) Provisions regarding minimum subscription before allotment of shares do not apply to a
private company.
3) A private company need not file a prospectus or a statement in lieu of prospectus with the
Registrar
4) Further shares can be issued without passing special resolution o obtaining Central
Government’s approval and need not be offered other existing members
5) Private company may issue share capital of such kinds in such forms and with such voting
rights as it may think fit. However, its paid up capital shall not be less than rupees one lac.
6) Private company can commence business immediately on incorporation.
7) Private company need not keep an index of members.
8) Private company need not hold statutory meeting or file statutory report.
9) Provisions as to overall maximum managerial remuneration and remuneration to directors
do not apply to a private company.
10) Minimum number of directors is only tow in a private company.
11) Provisions as to proportion of directors liable to retire by rotation do not apply to a
private company.
12) Director’s consent to act as such is not required.
13) Restrictions on appointment of directors as regards their consent and holding
qualification shares do not apply to a private company.
14) Government approval to appointment or amendment of provisions relating to managing
or whole tem or non rotational directors is not required.
15) Director’s contract to take up qualification shares need not be filed with the registrar of
companies,.
16) Provisions regarding loans to directors do not apply.
17) Provisions regarding interested directors not to participate or vote in Board’s proceedings
do not apply.
18) Provisions requiring government approval fro increasing remuneration of a director or
managing director do not apply.
19) Prohibition regarding appointment of a managing director for more than five years at a
time does not apply.
20) Restrictions on advancing loans to other companies do not supply
21) Provision relating to transfer of shares not to be registered except on production of
instrument of transfer, transfer by legal representative application for transfer and power to
refuse registration an appeal against refusal do not apply without prejudice to a power of a
private company to enforce its restrictions against the right to transfer the shares f such
company.