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company_law:kinds_of_companies

Kinds of Companies

Four Kinds of Companies

  1. Unlimited Companies
  2. Guarantee Companies
  3. Limited Companies
  4. Private Companies

Unlimited Companies

In Unlimited Companies the liability of the shareholders is not limited to their shares, but liable for all the trade debts, without any limit. Of course, the creditor will have to sue the Company and not the individuals. In case of winding up, the shareholders will have to contribute to the assets to dissolve the liability of the Company. Such a company need not have share capital; but it should have Articles of Association, setting out the number of members and the share capital, if any. It can reduce its own capital without the permission of the court. But, it must make annual returns.

Such companies are very rare.

Guarantee Companies

the liability of the members is limited to a particular sum specified in the Memorandum of Association. Hence, in case of a winding up the guarantee extends to the extent of the sums specified in the M/A only.

Limited Companies

the liability is limited to the shares subscribed and does not go beyond. Shareholder not liable.

(Add details from COMPANY - DEFINITION REGISTRATION And ADVANTAGES).

Private Companies

family concerns and small scale units may run business with a small number of persons (Minimum 2, Maximum 50) (Add details from Ch. 2.2).

Special features and privileges of Private Companies

A private company also has the M/A and A/A and is to be incorporated. Infact, it is having the advantages of both the privacy of a partnership and origin and performance of a corporate body.

Public Companies are like bees working in a glass-hive; but Private Companies can keep the affairs for themselves, because of the encouragement and benediction of the Parliament.

  1. Number
    The minimum is two and the maximum is 50. Hence, a Private Company can be formed with two persons (Public company minimum is 7).
  2. Transfer of shares :
    Restrictions may be imposed regarding transfer of shares. The total membership should not exceed 50. (It becomes public, if it is 50 or above).
    In it’s A/A, it must prohibit issue of prospectus to the public to subscribe for shares or debentures. Hence, all the procedures regarding issue of prospectus are not applicable to it.
  3. Directors
    There are many benevolent provisions. It may have only two Directors. They can be permanent life members (14 days notice, as in Public Company, is not applicable. Similarly rule relating to rotation, of directors number of directors. Reporting to the Registrar within 30 days of taking office as Directors, restriction as to remuneration etc., also do not apply), provisions relating to qualification shares do not apply.
  4. Statutory Meeting:
    Whereas this is a must in a Public Company, a Private company is exempted from holding a statutory meeting and of filing its statutory report.
  5. An interested director i.e., a director interested in the subject matter or issue cannot participate and vote in a Public Company, but not so in a Private Company. A director, who is selling his plot of land to the Company, is an interested director. The reason for giving these and other advantages is that no public money is involved, in private companies.
  6. A Private Company may commence its business on registration.
  7. It is exempted from filing with the Registrar a prospectus or a statement in lieu of prospectus.
  8. Director may vote on a contract in which he is interested. Restriction on remuneration to directors imposed in Public Companies do not apply.
  9. Violation of Conditions: The various privileges to a Private Company are available to it, as long as it maintains the status as a Private Company by observing the restrictions and limitations imposed on it. However, if it violates them, it will not be entitled to privileges. The Company Law Board may excuse if failure is accidental or due to some reasonable cause.


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