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Company law

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introduction to company law

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Company law

  1. 1. Company Law
  2. 2. History of Company Law in India • First legislative enactment known as the Joint Stock Companies Act, 1850 was passed in India in 1850. (this was based on the English Companies Act of 1844). • Amendment in 1857 (Joint Stock Companies Act, 1850)- The principle of limited liability was first time recognised in Joint Stock Companies. • This principle of limited liability was extended to banking companies, insurance companies in 1860.
  3. 3. • In the meantime, various legislations like the Companies Act, 1866 (repealing earlier Acts), Companies Consolidation Act, 1882, Companies Amendment Act, 1910 were enacted. • Later, Indian Companies Act, 1913 was enacted to consolidate and amend the law relating to trading Companies and other Associations in British India. • Indian Companies (Amendment) Act, 1936 passed. As Companies Act, 1913 was unsatisfactory and needed radial changes. • Since 1939, time of World War II, the management and organisation of Joint Stock Companies witnessed remarkable changes which altered the character of trade and industry.
  4. 4. • As a result of the Cohen Committee Report, 1945- The UK Companies Act, 1948 was enacted in England. • This called for a review of the Indian Companies Act. Also in the light if changed political and administrative conditions in India due to partition of India and the end of British rule in India. • This lead to the passing of the Companies Act, 1956.
  5. 5. The Companies Act, 1956 • The Government of India appointed a Committee under the Chairmanship of C.H. Bhabha in October, 1950 which submitted its Report in March, 1952. • On the recommendations of this Committee, Companies Act, 1956 was enacted which came into force on 1st April, 1956. • This repealed the earlier Companies Act, 1913. • It consisted of 658 sections and 14 schedules.
  6. 6. • The main object of the was to provide protection to investors, creditors and public at large while at the same time, leaving management free to utilize its resources and energies for the optimum output.
  7. 7. Amendments to Companies Act, 1956 • Companies (Amendment) Act, 1960 • 1963 Amendment provided for the appointment of a Companies Tribunal and constitution of the Board of Company Law Administration by the Central Government. • 1965 Amendment- annulled sections relating to directors. Extended the Act to Nagaland. • Companies Tribunal (Abolition) Act, 1969 • Companies (Amendment) Act, 1969- prohibited companies to make contributions to political parties and imposed penalties on companies committing the same.
  8. 8. Companies (Amendment) Act, 1974 • With Bank Nationalisation, abolition of Privy Purses of the erstwhile Princely States and taking over of insurance business and some major industries such as coal, steel, etc. necessitated exercise of greater governmental control over the activities of the corporate sector. • This introduced changes in provisions relating to Deemed Public Limited Companies, Public Deposits, unclaimed and unpaid dividends, company law board, foreign companies, voting rights to preference share holders, Managing Director, Whole-time Director etc.
  9. 9. Sachar Committee • To review the working of the Companies Act, 1956 and the Monopolies and Restrictive Trade Practices Act, 1969, a committee under the chairmanship of Mr. Justice Rajender Sachar (Delhi High Court) was appointed. • Certain amendments were made to both these Acts on the recommendations of the Committee.
  10. 10. Companies (Amendment) Act, 2000 • Main object- to restructure the working of Companies to cope with the new challenges of globalisation and liberalisation in the corporate world. Key highlights were- • Secretarial Compliance Certificate • Postal Ballot • Audit Committee • Board’s Report • Private Placement of shares • Shares in dematerialized form • Types of shares- equity and preference share capital • Power of SEBI • Dividend
  11. 11. • Minimum Paid up capital • Deemed Public Company • Directorship • Auditors Report • Debenture Trust Deed • Small share holders may have a director
  12. 12. Companies (Amendment) Act, 2002 • Definition of Producer Companies, its objectives laid down • Vacation of office of Director • CEO’s appointment and responsibilities • AGM and General meetings • Resolution of disputes
  13. 13. Companies (Second Amendment) Act, 2002 • The main object of the Act was the formation of – • National Company Law Tribunal (NCLT) and • National Company Law Appellate Tribunal (NCLAT) by abolishing the Company Law Board.
  14. 14. Corporate Identification Number (CIN) • The decision of the Department of Company Affairs, Ministry of Law, Justice and Company Affairs resulted in the allotment of a 21 digit Corporate Identification Number (CIN) to all Companies incorporated/ registered on or after November, 2000.
  15. 15. Companies Act, 2013 • Consists of 470 sections, 29 chapters and 7 schedules • Main object- to provide free access to entrepreneurs to open global market, ensure transparency and accountability in the working of companies and to protect the interests of investors and stakeholders. • The Act focuses on stricter enforcement of the law ensuring compliance and accountability in corporate dealings and company management. • Regulation of intercorporate loans and investments to private companies • This Act stresses on maintenance of accounting standards by corporate entities and improve operational efficiency of companies. • Under this Act, the quantum of punishment for the contravention of provisions of company law has been enhanced many more times than that prescribed in preceding Act of 1956.
  16. 16. Major features of this Act • One –Person Company • Addition of definitions to the Definition clause • Uniform Financial year • Number of members in Private companies increased to a maximum of 200 members as against the maximum of 50 members • Object Clause- Only one head and three sub-heads (main, ancillary and other objects) done away with. • Statement on lieu of Prospectus by Private Companies done away with • Provision relating to buy- back of shares by companies liberalised • Holding of AGM within 9 months from the closure of its first financial year. • Corporate Social Responsibility- Section 135 • Women Director
  17. 17. Company- Meaning • The word ‘company’ is derived from the combination of two Latin words, namely, com and panis, where ‘com’ means ‘together’ and ‘panis’ means ‘bread’. Thus initially the word company referred to an association of persons who took their meals together. The merchants in the leisurely past, took advantage of these festive gatherings to discuss their business matters. • Companies can be used to accommodate the smallest, one-person business to the largest, multi-national undertaking. • The term ‘company’ implies an association of a number of people for some common object or objects. In normal parlance, the word ‘company’ is reserved for those associated for economic purposes, i.e. to carry on business for gain. • However, to say that company law is concerned with those associations which people use to carry on business for gain would be wrong. Since companies can be incorporated under the Companies Act for carrying on not-for-profit businesses (section 8 of Companies Act, 2013).
  18. 18. • Before the inception of company as a device for business enterprise, two modes of carrying out business activities were commonly prevalent, namely – Monopoly and Partnership. • With the advance of time and impact of industrial revolution during 18th Century, the business activities expanded tremendously bringing about a radical change in the pattern commercial activities. • In monopoly, it was seen that great risk was involved since the required investment of capital by a single person who in the event of loss, had to bear the entire burden himself. • Partnership was a suitable device for small scale enterprises which could be financed and managed by a limited number of persons called partners. These partners would take mutual interest and there is also mutual trust and confidence among them. However these devices were unsuited to large scale business organisations which involved greater mobilisation of capital resources. Therefore, a new device in the form of company has now become the most dominant mode of carrying out business activities.
  19. 19. Definition of Company • Section 2(20) of the Companies Act, 2013 defines company as “a company incorporated under this Act or under any previous company law.” • According to Lord Justice Lindley, “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit and loss arising therefrom. 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 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. • Chief Justice Marshal of Supreme Court of USA in Dormouth Cottege v. Woodward (4 Wheat [US] 518) defines company as “a person, artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as incidental to its very existence, among the most important are immortality and if the expression may be allowed, individuality, properties by which a perpetual succession of many persons is considered as the same and may act as a single individual.”
  20. 20. Difference between Company, Partnership and Limited Liability Partnership Basis of distinction Company Partnership Limited Liability Partnership Formation Governed by Companies Act, 2013 Indian Partnership Act, 1932 Limited Liability Partnership Act, 2008 Registration Registration is compulsory Registration is optional Registration compulsory. If unregistered, then it will be considered as Indian Partnership Act, 1932 Legal Status Separate legal entity It is not distinct from the persons who form it. The partners are collectively known as a ‘firm’ Separate legal entity Agreement The persons who want to form a company prepare a Memorandum of Association The agreement to enter into partnership may or may not be in writing Agreement must be in writing. Section 23(2) requires that the LLP agreement and changes therein to be filed with the Registrar of Companies in the form and manner and accompanied by such fees as may be prescribed. This is to be done within 30 days of incorporation.
  21. 21. Basis Company Partnership LLP Members Private Limited Company- minimum is 2 and maximum is 200 (One –person company- where a private limited company can have only one person as a member). Public Limited Company- minimum is 7 and maximum is unlimited Minimum-2 maximum is 100 (section 464 of Companies Act. 2013) Minimum- 2 and atleast one of them is a resident of India. No maximum limit Liability Limited by share or limited by guarantee unlimited Limited to the contribution in the LLP Capital Can be altered by following the procedure laid down by the Companies Act, 2013 Capital contributed can be altered by the partners freely in case of partnership firm The quantum of each partner of an LLP is left to be decided by them inter se. However, capital contribution of a partner cannot be nil but may be nominal. Property Property of the company belongs to the company Belongs to all the partners Belongs to the LLP Agency A director of a company may act as an agent. A member is not an agent of the company Every partner is an agent of the firm and of every other partner of the firm Partner is an agent of LLP but not of other partners. Management Board of directors Every partner Every partner may take part in management if there is no cause to the contrary in the LLP agreement. But LLP Act makes designated partners wholly responsible and accountable for the compliance with the provisions of the Act
  22. 22. Basis Company Partnership LLP Transfer of shares Shares of public limited company are freely transferable. Shares of private limited company can be transferred subject to restriction imposed on them Partner cannot transfer his interest to any other person without the consent of other partners so as to make him the partner. If such transfer made then other partners can file suit for dissolution of the firm The rights of a partner to a share of the profits and losses of the LLP and to receive distributions in accordance with LLP agreement are transferable either wholly or in part. Dissolution Perpetual existence. Does not dissolve on death or insolvency of a member Dissolved by death and or insolvency of partner Not dissolved by death and insolvency Nature of document MoU and AoA are public documents Partnership deed is a private document LLP agreement is public document Name Companies Act, 2013 make it mandatory to use words “Limited” or “Private Limited” NO such provision in Act Every limited liability shall have either the words “limited liability partnership” or “LLP” as the last words Winding up Section 271 of the Act sets out the grounds on which the Court / Tribunal may wind up a company. Dissolution takes place as per the agreement, or by the consent of the partners or by notice by a partner or on the happening of certain events. Winding up may be voluntary or by the Tribunal.
  23. 23. Lifting of corporate veil • A company is a distinct personality by fiction of law. A company is an artificial or juristic person which can act only through natural persons. • The theory of corporate entity of a company is still the basic principle on which the whole law of corporations is based. The separate personality of the company being a statutory privilege, it must always be used for legitimate business purposes only. • Where the legal entity of a corporate body is misused for fraudulent and dishonest purposes, the individuals concerned will not be allowed to take shelter behind the corporate personality. In such cases, the Court will break through the corporate shell and apply the principle of what is known as “lifting or piercing the corporate veil” • Cases of tax evasion have become so common that the Courts have actively used the doctrine of piercing of corporate veil to probe into transactions and decide the actual entities responsible behind the facade of the company. Recently, in the case of Richter Holding v. The Assistant Director of Income Tax (Writ Petition No. 7716/2011 decided on 24.03.2011), the Hon’ble Karnataka High Court used this doctrine to take the view that it may be necessary for the courts to lift the corporate veil to look into the real nature of the transaction and ascertain the virtual facts. • Main aim is to make sure that the players behind the corporate veil maintain the sanctity of the company’s affairs and do not malign the same by injecting personal motive. Therefore, sometimes a situation may warrant that the legal identity of the company as a juristic person be seen in separation with the identity of the person causing the tax evasion, fraud, etc.
  24. 24. Salomon v. Salomon & Company Ltd. (1897) AC 22 • Salomon was in shoe and leather business. In 1892, he decided to convert the business into a company and for that purpose Salomon & Co. Ltd. was formed. The seven shareholders who were subscribers to the memorandum of this company were Salomon, his wife, his daughter and his four sons as members and Salomon was the Managing Director. Salomon’s wife and his five children held one share each in the company and all the shares were held by Salomon himself. • The business was transferred to company for 40,000 pounds. Salomon took 20,000 shares of 1 pound each debentures worth 10,000 pounds. • Later, the company went into losses. Assets were 6,000 pounds and liabilities worth 10,000 (debentures) and 70,000 (unsecured debts). Thus, assets were insufficient to pay the debenture holders and ordinary creditors. • The liquidator sought to have the debentures cancelled on the ground that the company was only an agent of Salomon. The unsecured creditors contended that though incorporated under the Act, the Salomon & Co. Ltd. had no independent existence and it was in fact only Salomon who was the sole person behind it, he was the managing director , the other directors being his sons, were under his control. Thus, in effect the company was a one-man’s show and therefore its existence was contrary to the spirit and meaning of the company law.
  25. 25. Held • The House of Lords rejected the contention of the liquidator that all the shares were bought by Salomon and his family members and that the company was nothing but one man show, House of Lords held that the provisions of the Act did not require that the persons subscribing shall not be related to each other or that holding of a single share shall not afford a sufficient qualification for membership. Whether the capital of the company is owned by seven persons in equal share, with the right to equal share in profits, it does not concern a creditor of the company. • The company does not lose its identity if the bulk of its capital is held by one person. The company at law is altogether different person from its subscribers. The House of Lords further stated that the Act said nothing about the subscribers being independent of that they should take substantial interest in the undertaking, or that they should have a mind and will of their own. • “ The company is at law a different person altogether from its subbscribers…and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers, and the same hands receive the profits the company is not in law agent of the subscribers or trustee for them. Nor are the subscribers, as members, liable in any shape or form, except to the extent and in the manner provided in the Act.”
  26. 26. Daimler Co. Ltd. v. Continental Tyre & Rubber Co. (1916) 2 AC 307 • Facts- in a company incorporated in England for the purpose of selling tyres manufactured in Germany by a German company, all the shares except one were held by the German subjects residing in Germany. The remaining one share was held by a British subject who was the Secretary of the company. The real control of the English company was in German hands. During World War I, the company commenced an action to recover trade debts. The question therefore was whether company had become an enemy company consequent to World War I.
  27. 27. Held • The House of Lords held “A company incorporated in United Kingdom is a legal entity, a creation of law with the status and capacity which the law confers. It is not a natural person with mind or conscience. It can neither be loyal nor disloyal. It can be neither friend nor enemy. But it can assume enemy character when persons in de facto control of its affairs are residents in any enemy country or, wherever resident, are acting under the control of enemies.
  28. 28. Sir Dinshaw Maneckjee Petit, Re. AIR 1927 Bom 371 • The assessee, Sir Dinshaw Maneckjee Petit, was a wealthy man enjoying huge income from dividends and interests. He formed four private companies and agreed with each to hold a block of the investment as an agent for it. He credited the income received by him in the accounts of the companies and took it back in the form of a pretended loan. The whole idea was to split his income into four parts with a view to evade taxes. • Held- “The company was formed by the asessee purely and simply as a means of avoiding super-tax and the company was nothing more than the assessee himself. It did no business, but was created simply as a legal entity to ostensibly receive the dividends and interests and to hand them over to the assessee as pretended loan.” • Whether a company is duly incorporated under the Companies Act, the court should start with a presumption that it is a separate entity from any individual although that individual may practically hold all the shares of the company. But it would not necessarily follow that every alleged transaction between such individual and the company would be valid and genuine.
  29. 29. • The court is empowered to go into the question as to whether the so called one man company is really a business carried on by the assessee himself for the purpose of avoiding payment of tax. • It was held by Marten CJ that “the company was formed by the assessee purely and simply as a means of avoiding supertax and the company was nothing more than the assessee himself. It did not make any business but was created simply as a legal entity to ostensibly receive the dividends and interests and to hand them over to the assessee as pretended loans.” • The company was created him merely so that he could make entries in the company’s books suggesting that it received the interests and dividends and paid them as loans while in reality the receipt of dividends and interest, if it can be called the busiess of the compnay, was its only business and was infact the business of the assessee himself. • Under given circumstances company cannot be regarded as carrying on its business separate from that of the assessee. The money received by the assessee be regarded as dividends paid by the company. There were no genuine loans but merely withdrawals of income disguised as loans. • It was held that the company was not a genuine company at all but merely he assessee himself disguised under the legal entity of a limited company. The business was not the business of the company but of the assessee himself, and that the alleged loans were not genuine loans.
  30. 30. Types of CompanyThe Companies Act, 2013 provides for the kinds of companies that can be promoted and registered under the Act. They are:- (a) Private Companies; (b) Public Companies; and (c) One Person Company These companies may be- (a) a company limited by shares; or (b) a company limited by guarantee; or (c) an unlimited company. Section 3 (1) of the Companies Act 2013 states that a company may be formed for any lawful purpose by— (a) seven or more persons, where the company to be formed is to be a public company; (b) two or more persons, where the company to be formed is to be a private company; or (c) one person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration Section 3A as introduced by the Companies (Amendment) Act, 2017 reads “If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.”
  31. 31. • Companies limited by shares-Section 2(22) -A company that has the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them is termed as a company limited by shares. Companies limited by shares are by far the most common and may be either public or private. • Companies limited by guarantee- Section 2(21)- A company that has the liability of its members limited to such amount as the members may respectively undertake, by the memorandum, to contribute to the assets of the company in the event of its being wound-up, is known as a company limited by guarantee. The members of a guarantee company are, in effect, placed in the position of guarantors of the company's debts up to the agreed amount. • Unlimited Liability Companies-Section 2(92)- In this type of company, the members are liable for the company's debts in proportion to their respective interests in the company and their liability is unlimited. Such companies may or may not have share capital. They may be either a public company or a private company. • On the basis of Incorporation, companies may be classified as: (a) Chartered Companies: These companies are incorporated by way of a Charter. Eg. The East India Company was incorporated under the Charter of Queen Elizabeth in 1600. But this mode of incorporation was adopted in earlier times for the creation of trading and non-trading companies. In modern times, companies are incorporated by registration under the Companies Act or as statutory companies created by special statutes. (b)Statutory Companies: constituted by a special Act of Parliament or State Legislature. The provisions of the Companies Act, 2013 do not apply to them. Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc. (c) Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under any previous company law, with ROC fall under this category.
  32. 32. PRIVATE COMPANY • According to Section 2(68) – a private company is defined as a company which has a minimum paid up capital of [one lakh rupees or such higher paid up capital- omitted by the Companies (Amendment) Act, 2015] as may be prescribed, and by its articles- (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred: 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: Provided further that the following persons shall not be included in the number of members;— (A) persons who are in the employment of the company; and (B) 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 (iii) prohibits any invitation to the public to subscribe for any securities of the company;
  33. 33. One Person Company • As per section 2(62) of the Companies Act, 2013, “One Person Company” means a company which has only one person as a member. Section 3(1)(c) lays down that a company may be formed for any lawful purpose by one person, where the company to be formed is to be One Person Company that is to say, a private company. In other words, one person company is a kind of private company. • As per section 3(2), an OPC may be formed either as a company limited by shares or a company limited by guarantee; or an unlimited liability company. • The Central Government is empowered to provide for simpler compliance regimes for such kinds of companies. This would exempt OPCs to devote considerable time, energy and resources on compliance legal compliances. • In OPC, unlike sole proprietorship, legal and financial liability is limited to the company only. In sole proprietorship, the liability extends to the individual and his or her entire assets. A One person company shall have a minimum of one director. Therefore, a One Person Company will be registered as a private company with one member and one director. • The concept of One person company is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans, access to market, limited liability, and legal protection available to companies. Prior to the new Companies Act, 2013 coming into effect, at least two shareholders were required to start a company. But now the concept of One Person Company (OPC) would provide tremendous opportunities for small businessmen and traders, including those working in areas like handloom, handicrafts and pottery. Earlier they were working as artisans and weavers on their own, so they did not have a legal entity of a company. But now the OPC would help them do business as an enterprise and give them an opportunity to start their own ventures with a formal business structure, • Further, the amount of compliance by a one person company is much lesser in terms of filing returns, balance sheets, audit etc. Also, rather than the middlemen usurping profits, the one person company will have direct access to the market and the wholesale retailers. The new concept would also boost the confidence of small entrepreneurs.
  34. 34. Small Company • As recommended by the Dr. JJ Irani Committee, the concept of small companies has been introduced in the Companies, Act, 2013: “The Committee sees no reason why small companies should suffer the consequences of regulation that may be designed to ensure balancing of interests of stakeholders of large, widely held corporates. Company law should enable simplified decision making procedures by relieving such companies from select statutory internal administrative procedures. Such companies should also be subjected to reduced financial reporting and audit requirements and simplified capital maintenance regimes. Essentially the regime for small companies should enable them to achieve transparency at a low cost through simplified requirements. Such a framework may be applied to small companies through exemptions, consolidated in the form of a Schedule to the Act.” • Small company is a new form of private company under the Companies Act, 2013. A classification of a private company into a small company is based on its size i.e. paid up capital and turnover. In other words, such companies are small sized private companies. • As per section 2(85) ‘‘small company’’ means a company, other than a public company,— (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and [term ‘or’ substituted by ‘and’ by Companies (Removal of Difficulties) Order, 2015] (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: Provided that nothing in this defintion shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act;
  35. 35. • As per Companies Act, 2013 a company may be treated as a ‘small company’ if it meets either of the conditions (1) or (2) provided above. However, most companies were being classified as small company since they meet criteria one but exceeded the monetary limit in respect of second criteria excessively. Therefore, in an effort to curb too many from being classified as a small company, the Ministry of Corporate Affairs changed “OR” at the end of condition 1 to “AND”. The update to definition was published in The Gazette of India on February, 13, 2015. • This was done by the Companies (Removal of difficulties) Order, 2015. • Advantages for Small Company • A private limited company that can be classified as a small company enjoys a number of benefits under the Companies Act, 2013 and lesser compliance formalities. Some of the advantages enjoyed are: • Filing Annual Return – The annual return of a private limited company classified as a small company, can be signed by a Company Secretary or by a Director of the private limited company. – The annual return of a private limited company NOT classified as a small company must be signed by a Director AND a Company Secretary. • Board Meeting – It is sufficient for a small company to conduct only two Board Meetings in a financial year. – Private limited company NOT classified as a small company are required to conduct four Board Meetings in a financial year. • Cash Flow Statement – A private limited company classified as a small company need NOT prepare cash flow statement as a part of the financial statement. – Private limited company NOT classified as a small company MUST prepare cash flow statement as a part of the financial statement. • Rotation of Auditors – Private limited company classified as a small company are NOT required to rotate Auditors. – Private limited company NOT classified as a small company MUST rotate Auditors every 5 or 10 years as per the Act.
  36. 36. PUBLIC COMPANY • By virtue of Section 2(71), a public company means a company which: (a) is not a private company; (b) has a minimum paid-up share capital of [five lakh rupees or such higher paid-up capital- omitted by the Companies (Amendment) Act, 2015], as may be prescribed. Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles As per section 3 (1) (a), a public company may be formed for any lawful purpose by seven or more persons, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration. As per section 58(2), the securities or other interest of any member in a public company shall be freely transferable. However, any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. Western Maharashtra Development Corpn. Ltd. V. Bajaj Auto Ltd [2010] 154 Com Cases 593 (Bom)- In the case of a public company, the Act provides that the shares or debentures and any interest therein, of a company, shall be freely transferable. The provision contained in the law for the free transferability of shares in a public company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder the freedom to transfer. The incorporation of a company in the public, as distinguished from the private, realm leads to specific consequences and the imposition of obligations envisaged in law. Those who promote and manage public companies assume those obligations. Corresponding to those obligations are rights, which the law recognizes as inherent in the members of the public who subscribe to shares.
  37. 37. Other forms of Companies 1. Association not for Profit – Section 8 2. Government Company- Section 2(45) 3. Foreign Companies – Section 2(42) 4. Holding, Subsidiary and Associate Companies- Section 2 (46), 2(87) and 2(6). To be read with the Companies (Amendment) Act, 2017 5. Investment Companies - Explanation (a) to section 186 6. Producer Companies- Section 465(1) 7. Dormant Companies- section 455 (1)

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