In this article, we shall discuss frequently asked 2 marks questions based on different kinds of companies.
a) Define company.
According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.”
b) State the nationality of company.
Company is governed by the laws of the land, in which it is incorporated. In TDM Infrastructure Private Limited v. UE Development India Private Limited, Arbitration Application No. 2 of 2008, the Supreme Court of India held that a company’s nationality is determined primarily by its place of incorporation, and is not affected by the company’s “central management and control” being located outside India.
c) What is a Private Company?
According to Section 2(68) of the Indian 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: 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; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
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d) What is a Public Company?
According to Section 2(71) of the Indian 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 in its articles.
e) What is One Person Company?
According to Section 2(62) of the Indian Companies Act, 2013, One Person Company means a company which has only one person as a member.
f) What is Associate Company?
According to Section 2(6) of the Indian Companies Act, 2013, associate company, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
g) What is Joint Venture?
Joint Venture is a business preparation in which more than two organizations or parties share the ownership, expense, return of investments, profit, governance, etc.
h) What is Investment Company?
i) What is Government Company?
According to Section 2(45) of the Indian Companies Act, 2013, Government company means 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 State Governments and includes a company which is a subsidiary company of such a Government Company.
j) What is Subsidiary Company?
According to Section 2(87) of the Indian Companies Act, 2013, subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
k) What is a Holding Company?
A holding company is a parent company, that holds majority voting shares in another company called subsidiary company that the shareholding is arranged in a way that the holding company can control the policies of its subsidiary company and oversee its management decisions.
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l) What is a Foreign Company?
According to Section 2(42) of the Indian Companies Act, 2013, foreign company means any company or body corporate incorporated outside India which—
(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
m) What is Non-profit Company?
These companies are also called as Section 8 companies. According to Section 8(1) of the Indian Companies Act, 2013, a Non-Profit making Company is a Company which:
(a) Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
(b) Intends to apply its profits, if any, or other income in promoting its objects; and
(c) Intends to prohibit the payment of any dividend to its members.
n) What is a Producer Company?
A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living and ensure a good status of their available support, incomes and profitability. Section 465(1) of the Companies Act, 2013 applies to it.
o) Distinguish between Private Company, Public Company, and One Person Company
| Point of Distinction | Private Company | Public Company | One Person Company |
| Definition | Section 2(68) Companies Act, 2013 | Section 2(71) Companies Act, 2013 | Section 2(62) Companies Act, 2013 |
| Name of Company | Must contain Pvt. Ltd. | Must contain Ltd. | Must contain OPC |
| Minimum Members | 2 | 7 | 1 |
| Maximum Members | 200 | No Limit | 1 |
| Transfer of Shares | No | Yes | No |
| Fund from public by share issue | No | Yes | No |
| Prospectus | No | Yes | No |
| Directors | Minimum 2 and Maximum 15 | Minimum 3 and Maximum 15 | Minimum 1 and Maximum 15 |
p) Distinguish between Company with Limited Liability and Company with Unlimited Liability
| Point of Distinction | Company with Limited Liability | Company with Unlimited Liability |
| Meaning | Limited liability means that the liability of the member of a company is limited to the total amount of money which they have invested in the business. | The liability that the member might have is not limited to the amount that they have contributed but it is beyond that. |
| Liability | The member cannot be made responsible for the losses that are beyond the share of their contribution. | There is no limit to the losses that the member have to bear. |
| Effect of Loss on Personal Assets | the personal properties of the owners or investors will not be forfeited if the company suffers losses or goes bankrupt. | the personal properties of the investors will also be at stake in the event the firm goes bankrupt. |
| Advantages and Disadvantages | Managers of a limited liability company are protected against personal liability, which may result in them acting in a reckless manner as they are protected against risk of loss. | Since the risk of investment is higher, there is a possibility for a higher rate of return in the event that the company succeeds. |
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q) Distinguish between Company Limited by Shares and Company Limited by Guarantee:
| Points of Distinction | Company Limited by Shares | Company Limited by Guarantee |
| Share Capital | These companies are set up with a share capital. | These companies are set without share capital. |
| Owners | They are owned by shareholders. | They are owned by one or more guarantors. |
| Division of investment or risk | The share capital of the company is divided into shares among shareholders. Each share represents a percentage of ownership in the company. | The guarantors agree to pay a fixed sum of money (a ‘guarantee’) toward debts if the business becomes insolvent. |
| Extent of liability and Return | The proportional value of the shares owned by each shareholder represents their percentage of control and ownership, their profit entitlement, and the limit of their personal financial liability for company debts. | The financial guarantee is the limit of a guarantor’s personal liability to the company. |
| Distribution of Profit | Profit is distributed among shareholders in the form of dividents. | This company has no shares so it cannot distribute profit |
| Suitable For | This type of company is suitable for any size and type of commercial business | This type of company is suitable for any size and type of non-profit business. |
r) Distinguish between Subsidiary Company and Holding Company:
| Points of Distinction | Subsidiary Company | Holding Company |
| Defining Characteristics | The Companies Act, 2013, mentions that the holding company is one wherein it holds a minimum of 50% of shares of another corporate entity. | More than 50% of the shares of the subsidiary are held by the holding company. |
| Administrative Control | Holding company has the power to appoint and remove board members, directors, and other key management and personnel of the subsidiary company. | A subsidiary’s operations have little or no control over the holding company’s operations. |
| Decision Making | The Holding Company has all ownership rights and duties over its subsidiaries and takes all major decisions. | Subsidiary Company is dependent on the Holding Company, and major decisions taken by the Holding Company |
| Intention | A holding company may invest in a number of subsidiaries, as a part of its investment strategy. This may also be carried out to minimise risks and for tax emoluments | When a company becomes a subsidiary of a respective holding company, all its subsidiaries become subsidiaries of that holding company |
| Strategy | A holding company takes charge of the subsidiary and regulates the market competition for the subsidiary company | A subsidiary company finds shelter under its parent holding company to protect itself from unfair competition and other uncertainties that arise during the course of the regular business |
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