Formation of a Company

Formation of a Company

Hello friends,

Here we are starting our new series on Companies Act, 2013 and therefore initializing the same with the very 1st part which deals with the Basic provisions:

Section 1: Applicability

This Act extends to whole of India and it is applicable to:

  • companies incorporated under this Act or under any previous company law,
  • Insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999.
  • Banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949
  • Companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003
  • Any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; and
  • Such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as may be specified in the notification.

Section 3: Formation of Company under this act

In case of Public Company          : 7 or more persons should be there to form a company

In case of Private Company        : 2 or more persons should be there to form a company

In case of one person Company: as the name says, only one person is required

Further Types of the above mentioned companies

The above mentioned companies can be formed as:

  1. Company Limited by Shares
  2. Company Limited by Guarantee
  3.  An unlimited company

Company Limited by Shares: Company limited by shares means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. The objective behind this type of company is profit. These companies issues shares and therefore have the shareholders and shareholders are known as the owner of the company. The extent of members liability is determined by the face value of shares

Company Limited by Guarantee: Company limited by guarantee means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. These companies are formed with the objective of social service i.e. to serve as non-profit organsations. These companies do not have shareholders. In the event of winding up of the company, All members are liable to pay the amount that they have guaranteed to pay to the company. Also, if the company has share capital, the members are liable to pay unpaid calls on shares in addition to the guaranteed amount.

An unlimited company: Unlimited company means a company not having any limit on the liability of its members. They are formed for profit-making and liability is unlimited. These companies may or may not have capital and therefore may or may not have shareholders. Also, the extent of liability of each member extends to the whole amount of the company’s debts and liabilities.

Among the above mentioned companies, the liabilities of members arises at the event of winding up of the company in case of Company limited by guarantee and unlimited company while the liability arises at the winding up or anytime during the existence of the company in the case of companies limited by shares.

Benefits of choosing the different types of companies

Company limited by shares:

  • Limited Liability: It means that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder’s personal assets are thus protected in the event of the company’s insolvency, but any money invested in the company may be lost.
  • No Tax: A shareholder gets returns from the company in the form of dividends and dividends are exempted from tax.
  • Goodwill: Limited liability helps to boost professional status and reputation as it creates an impression that the business is grounded, dedicated and reliable.

 

Company limited by Guarantee:

  • Limited Liability
  • No shareholders: This company does not have shareholders, a company limited by guarantee has one or more members.

Unlimited Company:

  • No need of share capital for registration
  • No restrictions on alteration of share capital       
  • These companies can purchase their own shares
  • Unlimited company is excluded while calculating the number of companies in which the director can be act as director
  • No requirement of Capital Redemption Reserve (CRR).

Here we end this part, for more information, stay connected to Atulkhurana.com and don’t forget to share and subscribe.

In case of any query related to above article, the questions can be asked by commenting in the comment box or the author can be contacted personally at info@atulkhurana.com

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Comments (3)

  • Surbhi Reply

    In a company limited by guarantee, what is the benefit of not having shareholders?

    August 9, 2017 at 6:28 pm
    • Atul Khurana
      Atul Khurana Reply

      This concept of Company limited by guarantee is opted by non profit organisations. In the case they issue share Capital then they have to pay dividends and interests to the shareholders. Now think, from where they will pay because they are not doing any commercial business. That’s why shareholders are kept out of this concept

      August 9, 2017 at 7:05 pm
      • Surbhi Reply

        okh.. got it.. thanks

        August 9, 2017 at 7:30 pm

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