CAIIB BRBL Module D Unit 17 : Types Of Companies

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Nov 25

CAIIB Paper 4 BRBL Module D Unit 17 : Types Of Companies (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called "Types Of Companies". Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module D (COMMERCIAL & OTHER LAWS WITH REFERENCE TO BANKING OPERATIONS) Unit 17 : Types Of Companies, Aspirants must go through this article to better understand the topic, Types Of Companies and practice using our Online Mock Test Series to strengthen their knowledge of Types Of Companies. Unit 17 : Types Of Companies

Types Of Companies

On the basis of incorporation, companies could be of two types namely –

Statutory Corporation
Companies registered under the Companies Act, 1956/2013

Statutory Company: A statutory company is created or incorporated by a special Act passed by either the Central or the State Legislature. It enjoys powers, rights and privileges as laid down in the Act. Hence, the statutory companies are not required to have Memorandum of Association. Although each statutory company is governed by the provisions of the special Act, the Companies Act, 1956/2013 is also applicable to them in so far as the provisions of the Companies Act, are not inconsistent with the provisions of the special Act

Example: Reserve Bank of India incorporated under the Reserve Bank of India Act, 1934.

Registered under the Companies Act, 1956 and also Companies Act, 2013: Such companies are incorporated and registered under the prevailing Companies Act, e.g. Tata Iron and Steel Company Limited is incorporated and registered under the Companies Act prevailing before the enactment of the Companies Act, 1956, i.e. the Companies Act, 1913 etc. and continue as such.

Classifications Of Companies On The Basis Of Liability

Where Companies are classified on the basis of liability, they could be –

Company limited by shares
Company limited by guarantee
Company with unlimited liability

Company limited by shares:

In such companies there is a provision for 'share capital' divided into a certain number of shares, which forms the source of funds to the Company, and each share has a fixed nominal value also known as the face value which the shareholder is bound to pay either at a the time of allotment or sometimes in instalments.
The member is not bound to pay anything more than the fixed amount on the share, whatever may be the liabilities in the books of the Company. In other words, the liability of the members of such a company is limited to the extent of amount unpaid on the shares.

Company Limited by Guarantee

Where the liability of the members of the company is limited by the memorandum of association to such an amount as the members undertake to contribute to the assets of the company in the event of the liquidation of the company, the company is known as a company limited by guarantee.
In such a company each member promises to pay a fixed sum of money in case of its winding up. The amount is called the guarantee.
A company limited by guarantee may or may not have a share capital. However, such a company must have articles of association.
If such a company has a equity share capital then each member is required to pay the amount of the fixed share capital, as in the case of a company limited by shares in addition to the guarantee. Thus the liability is restricted to the amount of the share capital plus the amount of guarantee.

Company with Unlimited Liability

Where the liability of the members of a company is unlimited it is known as an unlimited company. Every member of such a company is liable without any limit for its debts as in the case of a partnership firm in proportion to his/her interest in the company.
If such a company has equity share capital, it may be a public company or private company. An unlimited company must have articles of association and it must state the number of members and the share capital (if any) with which it is proposed to be registered.

Classifications Of Companies On The Basis Of Public Interest

On the basis of public interest, companies can be classified as under

Private company
Public company
Government company
Foreign company
One Person Company
Small Company

Private Company: Sec.2 (68) of ICA 2013

A private company is defined under the Section 3 of the Companies Act, 1956 as a company which under its articles of association contains the following restrictions:

Transfer of Shares: If a private company has a share capital it imposes restriction on the right to transfer shares in a manner which restricts the number of members to two hundred.
Restricts the number of members to two hundred: Except in the case of One person Company the maximum number of members of a private company is limited to two hundred excluding the members who were past employees or are the present employees of the company.
Issue of Prospectus: A private company cannot issue a prospectus and cannot invite the public to subscribe for any shares or debentures of the company.
Deposits: A private company prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. No minimum paid up capital is prescribed for a private company as per the Companies Act, 2013.

Public Company (Sec. 2 (72) of ICA 2013)

A public company is one which is not a private company. In a public company the number of its members is unlimited. Any seven or more persons can form a public company.
Generally, the shares of a public company are listed on the stock exchange and thereby the marketability/liquidity of the shares increases. No minimum paid up capital is prescribed for a public company as per Companies Act, 2013.

Government Company (Sec. 2 (72) of ICA 2013)

The Companies Act, 2013 Sec. 2(45) defines a government company as any company in which not less than fifty-one per cent of the paid-up share capital is held by:

The Central Government or
By any State Government or Governments or
Partly by the Central Government and partly by one or more of State Governments and

Includes a company which is a subsidiary of such a government company. In India there are a large number of such companies, two examples being Bharat Heavy Electricals Limited and Hindustan Aeronautics Ltd.

Foreign Company

Foreign Company as per Sec. 2(42) of Indian Companies Act, 2013, means any company or body corporate incorporated outside India which:

Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
Conducts any business activity in India in any other manner.

One Person Company (OPC) (Sec. 2(62))

As per provision of section 2(62) of the Companies Act, 2013, "one person company" (OPC) means a company which has only one person as member.
One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber's death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person Company along with its memorandum and articles.
The Companies Act further provides that when the paid up share capital of an One Person Company exceeds Rs. 50 lakh or its average annual turnover exceeds Rs. 2 crore immediately in preceding three consecutive financial years, the OPC shall be required to convert itself, into either private company or public company in accordance with the provision of section 18 of the Act within 6 months of the date as mentioned

Small Company

It means a company, other than a public company,

Paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
Turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.

Holding And Subsidiary Companies

A company is deemed to be a subsidiary of another if:

That other company controls the majority composition of its board of directors with the sole object of controlling its management.
That other company holds the majority of its shares.

If the holding company's subsidiary has its own subsidiary; it becomes the subsidiary of the first mentioned company (i.e. the first holding company).

Thus, for example, company B is a subsidiary of company A and company C is a subsidiary of company B then company C is a subsidiary of company A also.

Difference Between A Private Company And A Public Company

A private company can have only two members and two directors. A public company has to have a minimum of seven members and three directors.
A private company need not obtain a certificate of commencement of business from the Registrar of Companies which a public company has to obtain. A Private Company has to only get the certificate of incorporation.
A private company need not hold a statutory meeting and submit a statutory report to the Registrar of Companies while a public company has to do so.
Certain provisions of the Companies Act, with respect to requirements of appointment and remuneration payable to the directors applicable to a public company are not applicable to a private company.
Certain provisions of the Companies Act, with respect to annual general meetings of a company are not applicable to a private company.
Restrictions on the powers of the Board of Directors under Section 293 of the Companies Act, 1956 (Sec. 180 of ICA 2013) which stipulate that certain powers cannot be exercised by the Board of Directors except without with the consent of the shareholders of a company in a general meeting, are not applicable to a private company.

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CAIIB Paper 4 (BRBL) Module D Unit 17-Types Of Companies ( Ambitious_Baba )