Article explains Classification of Companies as limited Companies and unlimited Companies, Classification of Companies as Private and Public Companies, Legal Requirements for formation of a Company and also about formation of Public Company, Private Company and One Person Company (OPC).

Classification of Companies as limited Companies and unlimited Companies

1. Every Company formed under the Companies Act, 2013 shall be either a limited Company or an unlimited Company.

2. A limited Company may be further classified as follows:-

i. Company limited by shares

ii. Company limited by guarantee having no share capital

iii. Company limited by guarantee and having a share capital

3. An unlimited Company may be further classified as follows:-

i. An unlimited Company having no share capital

ii. An unlimited Company having a share capital

Classification of Companies as Private and Public Companies

Pursuant to Section 3(1) of the Companies Act, 2013, Every Company formed under the Companies Act, 2013 shall be either a Public Company or Private Company.A Company may be formed under the Act as One Person Company (OPC). OPC is also a private Company

Pursuant to Section 3(2) of the Companies Act, 2013,   A Company formed under section 3(1) may be either-

  1. A Company limited by shares; or
  2. A Company limited by guarantee; or
  3. An unlimited Company

Formation of Company (Section 3 of Companies, Act, 2013)

Legal Requirements for formation of a Company

Lawful purpose:- Section 3 states that a Company may be formed for any lawful purpose. Thus, no company shall be formed for carrying on any unlawful objects.

Subscription to Memorandum:-The Person who sign on the memorandum are termed as subscribers. The Provisions relating to subscription of Memorandum are explained as below:-

  1. In case the Company proposed to be formed is a public company, the memorandum must be subscribed to by seven or more persons.
  2. In case the Company proposed to be formed is a private company, the memorandum must be subscribed to by two or more persons.
  3. In case the Company proposed to be formed is OPC, the memorandum must be subscribed to by one person.

Public Company

According to section 2 (71) of the companies Act, 2013“public company” means a company which—

(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

Private Company

According to section 2 (68) of the companies Act, 2013 “private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

(iii) prohibits any invitation to the public to subscribe for any securities of the company;

Provided that 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:

Provided further that—

(A) persons who are in the employment of the company; and

(B) 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;

One Person Company (OPC)

According to section 2 (62) of the companies Act, 2013, ‘One Person Company (OPC)’ means a company which has only one person as a member.

The Companies Act, 2013 has introduced new concept of ‘One Person Company’ (herein after referred to as ‘OPC’). Section 3 (1) (c) has been notified vide notification dated 26th March, 2014 and the same has been effective from 01st April, 2014.

It is a new form of business by which company can be incorporated with one person only. It enables the entrepreneur carrying the business in the Sole-Proprietor form of business to enter into a Corporate Framework. One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with relaxed requirements under the Companies Act, 2013.

Member of OPC

  • Only a natural person (Rule 3(1)(a)) of Companies (Incorporation) Rules, 2014;
  • The person should be an Indian citizen and resident in India only (Rule 3(1)(a));
  • No person shall be eligible to incorporate more than one OPC (Rule 3(2)).
  • A member of OPC becomes a member in another OPC, by virtue of his being a nominee in that OPC; such member shall meet the eligibility criteria specified in sub rule (2) of rule 3 within a period of one hundred and eighty (180) days (Rule 3 (3));
  • No minor shall become member of the OPC or can hold share with beneficial interest (Rule 3 (4)).

Nominee of OPC

The subscriber to the memorandum of OPC shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that OPC (Rule 4 (1)).The name of the person nominated under sub-rule (1) shall be mentioned in the memorandum of One Person Company and shall be filed in Form No. INC-3 with the Registrar at the time of incorporation of the company along with its memorandum and articles.

  • Only a natural person can become a nominee (Rule 3(1) (b));
  • The nominee should be an Indian citizen and resident in India only(Rule 3(1) (b));
  • No person a become nominee in more than one OPC (Rule 3(2));
  • No minor shall become nominee of the OPC (Rule 3 (4)).

Explanation – the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two (182) days during the immediately preceding one calendar year.

Withdrawal of Consent by Nominee

  • The nominee may, withdraw his consent by giving a notice in writing to –
  • such sole member; and
  • The One Person Company.

The sole member shall nominate another person as nominee within fifteen (15) days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent in Form No INC 3 [Rule 4 (3)].

Change the name of Nominee

  • The subscriber or member of OPC may, by intimation in writing to the company, change the nominee at any time for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such another person in Form No INC 3 [Rule 4 (5)].
  • The company, in both the case, shall within thirty (30) days of receipt of the notice of withdrawal of consent or change the name as the case may be, file with the Registrar, in Form No INC 4 along with the written consent of such another person so nominated in Form No. INC 3 [Rule 4 (4) & (5)].

Note: Any change in the name of the person as Nominee shall not be deemed to be an alteration of the Memorandum

Appointment of Nominee in case of change in Membership

  • Where the sole member of One Person Company ceases to be the member in the event of death or incapacity to contract and his nominee becomes the member of such One Person Company, such new member shall nominate within fifteen(15) days of becoming member, a person who shall in the event of his death or his incapacity to contract become the member of such company, and the company shall file with the Registrar an intimation of such cessation and nomination in Form No INC 4 within thirty days of the change in membership and with the prior written consent of the person so nominated in Form No. INC 3.(Rule 4 (6))

Restrictions

  • OPC cannot be incorporated or converted into a company under section 8 of the Act. (Rule 3 (5)).
  • OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporates (Rule 3 (6)).
  • No OPC can convert voluntarily into any kind of company unless two years have expired from the date of incorporation ((Rule 3 (7));

Exception – If paid up share capital exceeds Rs. 50,00,000/- (Rupees Fifty Lakhs) or its average annual turnover during the relevant period exceeds Rs. 2,00,00,000/- (Rupees Two Crores) or if during financial year its balance sheet total exceeds one crore rupees, it would cease to be continue as an OPC. However, such OPC would be mandatorily required to convert itself within a period of six months into a Private or Public Company.

Author Bio

Qualification: CS
Company: Chinki Singhal & Associates
Location: NEW DELHI, New Delhi, IN
Member Since: 12 Jul 2018 | Total Posts: 15
CHINKI SINGHAL AND ASSOCIATES, is a Company Secretary proprietorship firm based in West Delhi, offering its expertise and Single Stop Solution for Corporate - Secretarial and Legal Requirements for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on View Full Profile

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One Comment

  1. Ismailbhai Shekh says:

    As you have mentioned, at the last paragraph of this article, in Explanation, “or if during financial year its balance sheet total exceeds one crore rupees, it would cease to be continue as an OPC.”

    Where do we find such thing?

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