Notes on
, Types of Company
Name Key Provisions
Associate Company a company in which some other company has a significant influence
[Section 2(6)] excluding Subsidiary Co.
Including Joint Venture
Significant Influence: control of at 20% of total voting power, or control of or
participation in business decisions under an agreement.
Body corporate" or Include a company incorporated outside India excluding
"Corporation co-operative society
[Section 2(11)] any other body corporate (not being a company as defined in this Act), as
notified by CG.;
Company [Section Means a company incorporated under this Act or under any previous
2(20)] company law
Company limited by Means a company having the liability of its members limited to such amount
guarantee [Section as the members undertake to contribute to the assets of the company in the
2(21)] event of its being wound up;
Company limited by Means a company having the liability of its members limited to the amount,
shares [Section if any, unpaid on the shares held by them;
2(22)]
Foreign Company Means any company or body corporate incorporated outside India which,—
[Section 2(42)]
(a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Government Means any company in which not less than 51% of the paid-up share capital
Company [Section is held by CG/SG/SGs/Partly by CG & by one or more SGs.
2(45)]
Also includes a company which is a subsidiary company of Govt. Co.;
Holding Company means a company of which one or more companies are subsidiary
[Section 2(46)] companies
One Person means a company which has only one person as a member;
Company [Section
2(62)]
Private Company means a company having a minimum paid-up share capital as may be
[Section 2(68)] prescribed, and which by its articles,—
i. restricts the right to transfer its shares;
ii. limits the number of its members to two hundred:
iii. prohibits any invitation to the public to subscribe for any securities of
the company;
Points to be remembered
where two or more persons hold one or more shares in a company jointly, they shall,
for the purposes of this clause, be treated as a single member:
Persons who are in the employment of the company; and persons who, having been
formerly in the employment of the company, were members of the company while in
that employment and have continued to be members after the employment ceased,
, shall not be included in the number of members;
and
Public Company Means a company which—
[Section 2(71)]
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed
Provided that
a company which is a subsidiary of a company, not being a private company, shall be
deemed to be public company for the purposes of this Act even where such
subsidiary company continues to be a private company in its articles;
Small company Means a company, other than a public company,—
[Section 2(85)]
i. paid-up share capital of which does not exceed Rs.50 Lakh or such
higher amount as may be prescribed but not more than Rs.10
crore; and
ii. turnover of which does not exceed Rs.2 crore or such higher amount
as may be prescribed but not more than Rs.100 crore:
Provided that
nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Subsidiary company A company in which the holding company—
or subsidiary
[Section 2(87)] i. controls the composition of the BOD; or
ii. exercises or controls more than 50% of the total voting power either
at its own or together with one or more of its subsidiary companies:
Points to be remembered
such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond two.
(a) a company shall be deemed to be a subsidiary company of the holding company
even if the control referred to in sub-clause (i) or sub-clause (ii) is of another
subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some power
exercisable by it at its discretion can appoint or remove all or a majority of the
directors;
Unlimited company Means a company not having any limit on the liability of its members
[Section 2(92)]
, CONCEPT OF CORPORATE VEIL
Separate legal identity of the company acts as a “corporate veil” which segregates the persons present
inside the company (i.e. BOD and the Members) from the outside world.
All the benefits accruing to the company are enjoyed by its members and directors, but if the company
commits any breach of contract then the suit is faced by the company in its own name, and not by the
shareholders and directors in their personal names.
LIFTING OF OR PIERCING THROUGH THE CORPORATE VEIL
Although company is a distinct personality but in fact it is an association of persons [including OPC] who
are the beneficial owners of the property of the body corporate. A company, being an artificial person,
cannot act on its own, it can act only through natural persons.
As the company is a separate personality under the eyes of law, it must be used for legitimate business
purposes only. And if a fraudulent and dishonest use is made of the legal entity, the individuals concerned
will not be allowed to take shelter behind the corporate personality. The Court will break through the
corporate shell and apply the principle of “lifting of or piercing through corporate veil”.
Definition of Promoter [Section 2(69)]
PROMOTER MEANS A PERSON—
(a) who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act:
PROVIDED THAT NOTHING IN SUB-CLAUSE (C) SHALL APPLY TO A PERSON WHO IS ACTING MERELY
IN A PROFESSIONAL CAPACITY;
, Types of Company
Name Key Provisions
Associate Company a company in which some other company has a significant influence
[Section 2(6)] excluding Subsidiary Co.
Including Joint Venture
Significant Influence: control of at 20% of total voting power, or control of or
participation in business decisions under an agreement.
Body corporate" or Include a company incorporated outside India excluding
"Corporation co-operative society
[Section 2(11)] any other body corporate (not being a company as defined in this Act), as
notified by CG.;
Company [Section Means a company incorporated under this Act or under any previous
2(20)] company law
Company limited by Means a company having the liability of its members limited to such amount
guarantee [Section as the members undertake to contribute to the assets of the company in the
2(21)] event of its being wound up;
Company limited by Means a company having the liability of its members limited to the amount,
shares [Section if any, unpaid on the shares held by them;
2(22)]
Foreign Company Means any company or body corporate incorporated outside India which,—
[Section 2(42)]
(a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Government Means any company in which not less than 51% of the paid-up share capital
Company [Section is held by CG/SG/SGs/Partly by CG & by one or more SGs.
2(45)]
Also includes a company which is a subsidiary company of Govt. Co.;
Holding Company means a company of which one or more companies are subsidiary
[Section 2(46)] companies
One Person means a company which has only one person as a member;
Company [Section
2(62)]
Private Company means a company having a minimum paid-up share capital as may be
[Section 2(68)] prescribed, and which by its articles,—
i. restricts the right to transfer its shares;
ii. limits the number of its members to two hundred:
iii. prohibits any invitation to the public to subscribe for any securities of
the company;
Points to be remembered
where two or more persons hold one or more shares in a company jointly, they shall,
for the purposes of this clause, be treated as a single member:
Persons who are in the employment of the company; and persons who, having been
formerly in the employment of the company, were members of the company while in
that employment and have continued to be members after the employment ceased,
, shall not be included in the number of members;
and
Public Company Means a company which—
[Section 2(71)]
(a) is not a private company;
(b) has a minimum paid-up share capital, as may be prescribed
Provided that
a company which is a subsidiary of a company, not being a private company, shall be
deemed to be public company for the purposes of this Act even where such
subsidiary company continues to be a private company in its articles;
Small company Means a company, other than a public company,—
[Section 2(85)]
i. paid-up share capital of which does not exceed Rs.50 Lakh or such
higher amount as may be prescribed but not more than Rs.10
crore; and
ii. turnover of which does not exceed Rs.2 crore or such higher amount
as may be prescribed but not more than Rs.100 crore:
Provided that
nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Subsidiary company A company in which the holding company—
or subsidiary
[Section 2(87)] i. controls the composition of the BOD; or
ii. exercises or controls more than 50% of the total voting power either
at its own or together with one or more of its subsidiary companies:
Points to be remembered
such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond two.
(a) a company shall be deemed to be a subsidiary company of the holding company
even if the control referred to in sub-clause (i) or sub-clause (ii) is of another
subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be
controlled by another company if that other company by exercise of some power
exercisable by it at its discretion can appoint or remove all or a majority of the
directors;
Unlimited company Means a company not having any limit on the liability of its members
[Section 2(92)]
, CONCEPT OF CORPORATE VEIL
Separate legal identity of the company acts as a “corporate veil” which segregates the persons present
inside the company (i.e. BOD and the Members) from the outside world.
All the benefits accruing to the company are enjoyed by its members and directors, but if the company
commits any breach of contract then the suit is faced by the company in its own name, and not by the
shareholders and directors in their personal names.
LIFTING OF OR PIERCING THROUGH THE CORPORATE VEIL
Although company is a distinct personality but in fact it is an association of persons [including OPC] who
are the beneficial owners of the property of the body corporate. A company, being an artificial person,
cannot act on its own, it can act only through natural persons.
As the company is a separate personality under the eyes of law, it must be used for legitimate business
purposes only. And if a fraudulent and dishonest use is made of the legal entity, the individuals concerned
will not be allowed to take shelter behind the corporate personality. The Court will break through the
corporate shell and apply the principle of “lifting of or piercing through corporate veil”.
Definition of Promoter [Section 2(69)]
PROMOTER MEANS A PERSON—
(a) who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act:
PROVIDED THAT NOTHING IN SUB-CLAUSE (C) SHALL APPLY TO A PERSON WHO IS ACTING MERELY
IN A PROFESSIONAL CAPACITY;
