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Classification and formation ofcompany act
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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 iscontained in the companies act,1956,as
amended up to date.
This act runs into 658 sections and 15schedules.
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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 insurancecorporation, state bank of India, unit trust
of india and reserve bank of India.
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(iii) registered companies: are companiesregistered under the act.
2.On the basis of liability of members-
(iv) Limited by share: where the liability ofthe members of a company is limited tothe amount unpaid on the shares.
(v) Limited by guarantee: where the liabilityof the members of a company is limitedto a fixed amount which the membersundertake to contribute to the assets of
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the company in the event of its being woundup.
vi) Unlimited: every member is liable for
the debts of the company, as in anordinary partnership, in proportion to hisinterest in the company.
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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.
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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 centralgovernment and partly by one or more
state government.
(ii)Foreign company: Means a companyincorporated outside India but having a
place of business in India.
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(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.
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(iv)Producer companies: any 10 or more
individual producers or any 2 or more
producer institution may form and
incorporate a company as a producercompany.
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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.
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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 concernfor the purpose of making profits therefore.
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2.Registration/ incorporation of company
The promoter of the company will submit
the following documents with the
registrar of companies for theregistration 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.
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A statutory declaration of compliance.
Any agreement with the relevant persons of
the proposed company.
The registrar of companies allot a corporateidentity number (CIN) to each company
registered on or after november1,2000.
After scrutiny of all these documents and ifthey are in order, the registrar of companies
shall issue a certificate of incorporation.
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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 itsown agreement.
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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 aprospectus it has not proceed to allot any
of the shares offered to the public for
subscription.
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4.Commencement of business
Every private company and company not
limited by shares can commence business
immediately on receipt of certificate of incorporation.
But a public company limited by shares is
debarred from comencing business onborrowing money without the certificate
of commencment of business.
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Where the company has issued
prospectus- it has to satisfy the following
condition.
The minimum subscription in cash hasbeen received,
Every director of the company has paid in
cash his qualification shares, aproportionpayable on application and allotment on
the shares offered for public subscription.
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No money is liable to be repaid onapplicants for any shares or debentures
which have been offered for public
subscription by reason of any failure toapply for, or to obtain, permission for the
shares or debentures to be dealt in any
recognised stock exchange.
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A statutory declaration duly vreified byone of the directors or the secretary in the
prescribed form that the above conditions
have been complied with, is field withregistrar.
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Where the company has not issued aprospectus- it has to satisfy the follwingcondition.
A statement in lieu of prospectus has beenfield with registrar,
Every director of the company has paid onhis shares in cash, aproportion equal to the
proportion payable on application andallotment on the shares payable in cash.
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A statutory declaration duly verified byone 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.
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