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Amity Business School
TOPIC:
Type of Companies

Company
? A company is like a group of people who come together because they want to
achieve something together. They put their money into it, and this money is
divided into parts called "shares." The best part is that they are not responsible
for all the company's debts; their responsibility is limited to the money they put
in.
? Now, here's the interesting part: A company is not a real person like you or me.
It's a kind of "imaginary person" created by the law. The law treats it like a
person, even though it doesn't exist in the way we do. It's a legal concept.
? According to a law called the Companies Act from 1956, a company is defined
as "a company formed and registered under this Act or an existing company as
defined in section 3 (1) (ii)." In simple words, it's a company that's been
created and registered according to this law or one that already existed when
this law was made.

Main characteristics of a company
? Separate Legal Entity: A company is like a separate
person in the eyes of the law. Imagine you have a
favorite toy, and you give it a name. That toy is now a
separate thing from you. Similarly, a company is its own
thing, separate from the people who own it. If something
goes wrong with the company, the owners aren't
personally responsible.
? Perpetual Succession: A company can live forever,
even if the people who started it pass away. Think of it
like a school that never closes. It keeps running year
after year, no matter what happens to the teachers or
students.

? Limited Liability: This means that if the company gets
into financial trouble and owes money, the owners
(shareholders) are only responsible for the amount they
invested in the company. Let's say you buy a ticket for a
movie. If the movie turns out to be bad, you're not
responsible for the whole movie; you're only out the cost
of the ticket.
? Separate Property: Just like you have your things (toys,
books, etc.), a company has its own stuff, like money,
buildings, and equipment. Even though people own the
company, these things belong to the company itself.

? Transferability of Shares: Shares in a company
are like pieces of a big cake. If you have a piece
of the cake (a share), you can sell it to someone
else. It's like sharing your candy with a friend.
? Common Seal: A common seal is like a special
stamp that a company uses to make important
documents official. Imagine you have a stamp that
says, "Approved." When you stamp a paper with
it, it shows that the company agrees with what's
written on the paper.

Types of Company
? A private company is a kind of company that has some special
rules. To be a private company:
? It needs to have at least 2 people who own and run it. So, you
can't start a private company all by yourself; you need at least one
more person.
? It can't have more than 50 people who own it. But, there's a catch:
if some of those people work for the company or used to work for it
and still want to be part of it, they don't count toward this 50-people
limit.
? It has to keep its shares within the company. This means that if
you have shares in a private company, you can't just sell them to
anyone you want. You need permission from the company to do
that.
?

? It can't ask the public for money. Unlike some big
companies that ask lots of people to buy their shares or
lend them money, a private company can only get money
from its own members (the people who own it), the
directors, or their relatives.
? It needs to put "private limited" in its name. When you
see a company name with "private limited" at the end,
you know it's a private company.
? So, to sum it up, a private company is a bit like a small,
close-knit group of people running a business together,
and it has some special rules to follow.

? A public company is like a bigger and more open club for
businesses. Here's what makes a company a public one:
? Minimum Money: A public company needs to have at least
five lakh rupees as its starting money (capital). It can have
more money if the rules say so.
? Not Private: Unlike a private company, it's not exclusive.
Anyone can buy shares in a public company if they want to.
? Seven People: To start a public company, you need at least
seven people. They come together to form the company.
? No Limit on Members: There's no limit to how many people
can be part of a public company. It can have a lot of members,
like a big group.
? At Least Three Directors: A public company must have at
least three directors. These are the people who make

? A "Government company" is a special type of company that's mostly
owned by the government. Here's how it works:
? Ownership: To be a Government company, more than half (at least
51%) of the company's shares (or ownership) should belong to either:
a) The Central Government (like the big national government). b) Any
state government (like the government of a particular state). c) It can
also be a mix, where some shares belong to the Central Government,
and some to one or more state governments.
? Special Audit: Government companies are a bit different because
they're owned by the government. So, the law has special rules for
checking their financial records, which is called an "audit."
? Auditor Appointment: The person who checks the financial records
of a Government company (the auditor) is chosen by a special
government official called the "Comptroller and Auditor General of
India."

? A foreign company is a company that is created in a different
country, not in India. If they want to do business in India, they need
to follow certain rules. Here are the important things to know:
? Rules for Foreign Companies: There are rules (Sections 591 to
602 of the Companies Act) that foreign companies must follow when
they operate in India.
? Registration: When a foreign company wants to do business in
India, they must tell the government about it. They have to register
with the Registrar of Companies in New Delhi. Also, if they have a
place of business in a specific state in India, they need to register
with the Registrar of Companies for that state.
? Time Limit: They have to do this within 30 days of starting their
business in India. So, as soon as they set up their place of business,
they need to let the government know within a month.

? Imagine two companies, Company A and Company B. They are like family members
in the business world. When we talk about "holding" and "subsidiary" companies,
we're talking about their relationship.
? Subsidiary Company: This is like the younger brother or sister in a family. If
Company A controls Company B in some important ways, then Company B is like
Company A's subsidiary. It's kind of like how parents can have control over their
kids.
? Holding Company: On the other hand, the bigger, more powerful company that has
control over the smaller one is called the "holding" company. It's like the parent in the
business family.
Holding and Subsidiary companies

? Now, let's see how the law defines this relationship:
? Control of Directors: If Company A (the holding company)
gets to decide who sits on Company B's (the subsidiary
company) board of directors, it's like Company A is the boss,
and Company B follows its orders.
? Holding More Than Half the Money: If Company A (the
holding company) owns more than half of the money that
Company B (the subsidiary company) has in its shares, it's like
Company A has a big say in how Company B runs its
business.
? Family Tree: If Company A is a subsidiary of another
company, let's call it Company C, then Company B (if it's
controlled by Company A) is like a grandchild of Company C.

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PPT_Module 3) Type of Companies_Part I.pdf

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PPT_Module 3) Type of Companies_Part I.pdf