Classification and formation of company act

Meaning and nature of a company

In simple language company implies an association of persons for some common object. The law relating to companies in India is contained in the companies act,1956,as amended up to date. This act runs into 658 sections and 15 schedules.

Classification of companies
Companies can be classified on various basis. 1.On the basis of mode of in corporation (i)Chartered companies: like east India company. Generally not found in India. (ii)Statutory companies: which are created by a special. E.G. Life insurance corporation, state bank of India, unit trust of india and reserve bank of India.

(iii) registered companies: are companies registered under the act. 2.On the basis of liability of members(iv) Limited by share: where the liability of the members of a company is limited to the amount unpaid on the shares. (v) Limited by guarantee: where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of

the company in the event of its being wound up. vi) Unlimited: every member is liable for the debts of the company, as in an ordinary partnership, in proportion to his interest in the company.

3.On the basis of number of members. vii) Private: where the minimum number of members is two and maximum fifty. viii) Public: where the minimum number of member is seven and maximum num is limited by a number of shares.

4. Other types of companies: (i)Government companies : Any company in which not less then 51% of the paid up share capital is held by the central government and partly by one or more state government. (ii)Foreign company: Means a company incorporated outside India but having a place of business in India.

(iii)Holding and subsidiary company: a company is a holding company of another, if the other is subsidiary. A company shall be deemed to be a subsidiary of another if: That other company controls the composition of its board of directors, or The other company holds more than half in nominal value of its equity share capital. or It is a subsidiary of a third company which itself is a subsidiary of the controlling company.

(iv)Producer companies: any 10 or more individual producers or any 2 or more producer institution may form and incorporate a company as a producer company.

Formation of a company
The complete process of formation of a company may be divided into four stages namely; 1. Promotion 2. Registration 3. Floatation 4. Commencement of business.

1.Promotion: Promotion means the preliminary steps taken for the purpose of registration and floatation of the company. Gerstenberg has defined the term promotion as the discovery of business opportunities and the subsequent organization of fund, property and managerial ability into a business concern for the purpose of making profits therefore.

2.Registration/ incorporation of company The promoter of the company will submit the following documents with the registrar of companies for the registration of company. The memorandum of association The articles of association A list of persons who have consented to act as directors of the proposed company.

A statutory declaration of compliance. Any agreement with the relevant persons of the proposed company. The registrar of companies allot a corporate identity number (CIN) to each company registered on or after november1,2000. After scrutiny of all these documents and if they are in order, the registrar of companies shall issue a certificate of incorporation.

3.Flotation/ Raising of capital A private company prohibited from inviting public to subscribe to its share capital. There for when a private company is formed, the requisite capital is obtained from friends and relatives by making its own agreement.

A public company can take following steps Issue a prospectus in case public is to be invited to subscribe to its capital or, Deliver a statement in lieu of prospectus where the company has either not issued a prospectus or though it has issued a prospectus it has not proceed to allot any of the shares offered to the public for subscription.

4.Commencement of business Every private company and company not limited by shares can commence business immediately on receipt of certificate of in corporation. But a public company limited by shares is debarred from comencing business on borrowing money without the certificate of commencment of business.

Where the company has issued prospectus- it has to satisfy the following condition. The minimum subscription in cash has been received, Every director of the company has paid in cash his qualification shares, aproportion payable on application and allotment on the shares offered for public subscription.

No money is liable to be repaid on applicants for any shares or debentures which have been offered for public subscription by reason of any failure to apply for, or to obtain, permission for the shares or debentures to be dealt in any recognised stock exchange.

A statutory declaration duly vreified by one of the directors or the secretary in the prescribed form that the above conditions have been complied with, is field with registrar.

Where the company has not issued a prospectus- it has to satisfy the follwing condition. A statement in lieu of prospectus has been field with registrar, Every director of the company has paid on his shares in cash, aproportion equal to the proportion payable on application and allotment on the shares payable in cash.

A statutory declaration duly verified by one of the secretary in the prescribrd form, that the above conditions have been complied with, is filed with registrar . When the company has complied with the aforesaid conditions, the registrar will issue a certificate to commence business.

THANK YOU