Pursuant to section 11(2) of the companies act 1956, (hereinafter called “the Act”), where more than 20 persons jointly desire to carry on any business (other than banking) with the object of acquisition of gain, they can go about to pursue that objective only if they form a company and get it registered under the provisions of the act. Where the proposal is to undertake the business of banking. It can be carried on without a company registration. If the number of persons joining together for the business is not more than ten. If there are more than ten persons who together intend to do banking business, they cannot do so unless they form a company and register. The kinds of companies incorporated under the act 1956.
The mandatory need for company registration is arises only when an association of more than 20 persons intend to carry on some business other than banking with the object of acquisition of gain.
Meaning of the term person
The term “person” for computing the total number of persons means natural individuals and incorporated bodies as per General Clauses Act 1899. Hence a company under the act is also considered a “person” irrespective of the number of members it may have.
Exemption from the section as to number of members
In terms of sub-section(2), the business carried on by a single joint family will be in order without registration as a limited company. Even if the members comprising it are more than ten or twenty, as the case may be. But where two or more joint families combine to do business registration, such a combination of individuals other than minor members forming part of the joint families will be taken into account for computing the total number of members which shall not exceed 10 or 20 if they want to do business without registration.
Any business carried on in contravention of section 11 will be considered illegal. The persons carrying on the said business will be held personally liable for the debts and obligations incurred in such business. Further, it was held that an illegal association of more than 20 person carrying on any business will not be able to initiate any legal proceedings against a person to recover debts due to the said association. Chennai Hindu Mutual Benefit Fund v. Raghava Chetti (1985) 20 Comp. Cas.286 in which an unregistered partnership cannot use for its dissolution or for taking of its accounts. It was also held in Gopalakrishnan v. Peerulal (1953) AIR maintain a suit for refund of subscription amount paid by them. Every person who contravenes the provisions of section 11 shall be punishable with fine up to ₹10,000.
Kinds of companies
The various kinds of companies that can be incorporated under the companies act 1956 is given below :
Companies limited by shares
It is an established practice that commercial, trading and industrial companies are incorporated as limited by shares. The features of such companies are that there will be an authorized share capital of a certain amount which is divided into shares of a definite amount called the par value or nominal value of shares. The authorized share capital may comprise more than one kind of share viz., ordinary or equity share and preference share or in the case of a private limited company, equity and any other kinds of shares as envisaged in section 90 of the act.
One will find companies limited by guarantee in the fields of association of traders formed for trade protection and collection of relevant data and information or associations formed for entertainment and promotion of cultural activities which are established for rendering service to members and not earning profit.
Companies limited by guarantee without share capital
Companies limited by guarantee and having no share capital are exactly similar in nature to the guarantee companies referred to above except that there will be no share capital. The members will be liable, in the circumstance referred to above, to contribute an amount not exceeding the sum specified. This type of company is also useful in the areas of guarantee companies with share capital.
Unlimited companies are uncommon and rare. Every member in such a company is jointly and severally liable for all the debts and liabilities of the company. Accordingly, the liability of a member of such a company is analogous to that of the individual partners in a firm of partnership. Unlimited companies may have share capital although, like some guarantee companies, they are not bound to do so. It may be of interest to know, that a finance company of repute in the country is reported to have been formed as an unlimited public company a few years ago.
The above type of companies may be formed as “Private Limited” or “Public Limited”. These are explained hereunder :
Private Limited Company
Section 3(1) (iii) of the act has been amended by the Act, 2000 so as also to provide that a private limited company shall have a minimum paid-up capital of Rs.One lakh. The revised section be a private limited company as one which :
(a) has a minimum paid-up capital of Rs.1 lakh or such higher capital as may be prescribed.
(b) by its Articles of Association :
(i) restricts the right to transfer its shares, if any
(ii) limits the number of its members to which will not include :
(a) the company members and employees
(b) When one or more shares are held by two or more persons jointly, they shall be treated as a single member.
(iii) Prohibits any invitation to or acceptance of deposits from persons other than the members, directors or their relatives.
A private limited company including a private company subsidiary of a public limited company shall have atleast two members at any time, but the latter type will be treated as a public limited company as per definition of a public limited company stated below.
Producer Companies
The new type of private limited company known as a producer company has been introduced in the act by the companies (amendment) act 2002. Such a producer company consists of primary producers of agricultural produce and hand loom, handicrafts and cottage industries and producer institutions as members or may be converted from a multi state co-operative society. Such a company shall be a private limited company but shall have minimum ten individual producers or two or more institutions or a combination of ten or more individuals and producer institutions as members.
Public Limited Company
The Companies (Amendment) Act 2000 has also defined a public limited company as one which :
(i) is not a private limited company
(ii) It has a minimum paid-up capital of Rs.5 lakhs or such higher capital as may be prescribed.
(iii) is a private limited company but secondary of a public limited company.
(iv) shall have at least seven subscribers to it memorandum of association, namely seven members.
A company registered under section 25 of the act before or after the commencement of the amendment act 2000 shall not be required to have the minimum paid-up capital prescribed above.
Time by which existing companies shall increase the capital if applicable
Every existing public limited company or private limited company was required to increase its respective paid-up share capital to Rs.5 lakhs to Rs.1 lakh, respectively within a period of two years from the commencement of the said act, namely within two years from 13-12-2000. It may however, be stated that a company incorporated after 13-12-2000 was expected to have the minimum paid-up capital at the time of registration, or immediately after registration.
New Companies – Time Element Not Specified
Where a new company is registered after commencement of the said amendment act, at the time of registration. The company registration may only with an authorized capital which is not less than the minimum prescribed as mentioned above. When the said authorized capital is issued and made paid up, the company will have the minimum paid up capital.
Default by an existing private limited company or public limited company to increase its paid-up capital as required
Pursuant to section 3(5) of the act, where an existing private limited company or public limited company fails to enhance its paid-capital to the extent required within 2 years of the commencement of the companies (amendment) act 2000. The company shall be deemed to be a defunct company as per section 560 of the act. The name shall be struck off from the register by the registrars.
Unlimited liability of director or manager
It may be useful to know in this context that in a limited company (limited by shares or by guarantee). The liability of the directors or any director or the manager may be unlimited.
One company shall be deemed to be subsidiary of another if –
(a) The other company controls the composition of the board of directors of the former.
(b) The other company exercises or controls more than half of the total voting power of the former where that former company was incorporated prior to the commencement of the companies act 1956.
(c) The former company is subsidiary of any other company which is the subsidiary of the other. For instance, company A is a subsidiary of company B and company C is subsidiary of company A is to be registered in Chennai.
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