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G.K.Kedia & Co.

Company Formation Services

» What is a Company
A Company is a voluntary association of people established for a distinct business objective, name, and range of liabilities. A company is a legal entity and a juristic body or person. Hence, a company is empowered to file a suit, and can be represented by a competent authority or person before a Court of law or any other place of justice. However, since a company is not considered as a citizen, it cannot claim any fundamental rights given to citizens. A company is formed and registered under the rules and regulations of The Companies Act, 2013. A Company is a separate legal entity quite distinct from its members and shareholders. There is a distinguished difference between the ownership and the control over the affairs of the company. Members and shareholders are undoubtedly the legitimate owners of the company, but a company is actually managed, directed, and governed, by the directors who are elected unanimously by all the members of the company.
»Characteristics of a Company
Any Company formed and registered according to The Companies Act, 2013 has the following salient features:
. A separate legal entity
. An organized and incorporated body
. An artificial legal body or person
. Limited range of liabilities
. Perpetual succession
. Common seal
. Right to enter into contracts
. Right to sue
. Right to own property
. Flexibility of investment

Basic Difference between a Public Company & a Private Company

Serial No. Criteria Section Public Company Private Company
1. Minimum numbers of members 12(1) 7 2
2. Maximum numbers of members 3(1) (iii) No restriction 50
3. Minimum Authorized Share capital 3(1) (iii) 5 lakh 1 lakh
4. Acceptance of Public Deposits 3(1) (iii) No restriction Can not accept
5. Transfer of shares 3(1) (iii) No restriction Right to transfer is restricted
6. Invitation to public 3(1) (iii) Can invite the general public to subscribe for its shares or debentures. Prohibition on invitation to the public to subscribe for any shares.
7. Number of directors 252(1) & (2) 3 2
8. Commencement of Business 149(2) &(7) Only after obtaining the certificate of Commencement of business Soon after obtaining the Certificate of Incorporation
9. Statutory meeting & Statutory report 165 Must hold a statutory meeting and file a statutory report with the Registrar Need not hold a statutory meeting.
10. Consent to act as director 264(2) & (3) Form-29 has to be filed within 30 days from the date of appointment with the registrar of companies. Not required to file with the Registrar of companies.
11. Appointment by single resolution 263 Appointment of each director must be voted on individually May be appointed by a single resolution
12. Retirement by rotation 255 At least 2/3 of the directors must retire by rotation. Not required to retire by rotation
13. Increase in numbers of directors 259 Central Government approval is required to increase the number of directors beyond 12 Number of directors may be increased to any extent without the permission of Central Government.
14. Quorum of general meeting 174(1) 5 2
15. Managerial Remuneration 198 Total managerial remuneration can not exceed 11% of the net profits No restrictions on managerial remuneration.
16. Index of Members 151(1) Need to have Index of members Need not have a index of members
17. Appointment of New Director 257(2) Special Notice of fourteen days is required Not applicable
18. Vote by interested directors 300 Can not vote on a contract in which the directors are interested Can vote on the contract in which they are interested

Special privileges available to the Private Limited companies (In addition to above )

1. The restrictions as to the number of companies of which a person may be appointed managing director and prohibition of such
     appointment for more than five years at a time do not apply to a private company.
2. Provisions regarding loan to directors, etc. (sec.295) are not applicable to a private company.
3. No person other than the members of a private company is entitled to inspect, or obtain copies of, the profit and loss account under
    section 610.
4. Section 171 to 186 relating to general meeting are not applicable to a private company if it makes its own provisions by the Articles.

Benefits of Incorporating a Public Limited Company

1. No restriction on right of transfer of shares.
2. No limit on number of members of the company.
3. An invitation can be made to the public to subscribe for any shares in, or debentures of the company.
4. A public company can invite or accept deposits from the public.

Private company which is a subsidiary of Public Company

A private company which is subsidiary of a public company will be treated as a public company from the date of commencement of the Companies (Amendment) act, 2000.

Conversion of Private Company into Public company

A private company may, on its own, become a public company. The following steps are necessary for this purpose:
1. Special Resolution.
A private company desiring to become a public company, must pass a special resolution deleting from its articles the requirements of section 3(1) (iii).

2. Prospectus
Within 30 days from the passing of the special resolution, a prospectus or a statement in lieu of prospectus must be filed with the Registrar.

3. All other minimum requirements
All other minimum requirements of the Act should be complied with, such as raising the paid-up capital to minimum of Rs. 5 lakhs and increasing the number of shareholders to 7 and directors to 3.

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