Tag: Corporate Policies

Director is an individual appointed to the Board of Directors of a company to manage and oversee its affairs in accordance with the Companies Act, 2013 and the Articles of Association. Directors act as agents, trustees, and representatives of the company, ensuring compliance with laws and protecting stakeholders’ interests. They are responsible for formulating policies, making strategic decisions, and supervising the company’s overall operations. A director must act in good faith, exercise due diligence, and prioritize the company’s growth while balancing shareholder and societal interests.

Appointment  of Director:

The appointment of a Director in India is governed by the Companies Act, 2013. Directors are appointed to manage and control the company’s affairs, ensuring compliance with legal and corporate governance requirements. The first directors of a company are usually named in the Articles of Association or are appointed by the subscribers at the time of incorporation. Subsequent appointments are made by the shareholders in the general meeting through an ordinary resolution, unless the Act requires a special resolution.

In the case of a public company, two-thirds of the directors are appointed by shareholders, and the remaining may be appointed as per the Articles. Private companies enjoy greater flexibility. Independent directors, where applicable, are appointed by the Board and approved in the general meeting. Additionally, directors may be appointed by the Board of Directors to fill casual vacancies, subject to approval in the next general meeting.

Every appointment must be filed with the Registrar of Companies in Form DIR-12 within 30 days. The appointed director must furnish their consent in Form DIR-2. Thus, the process ensures transparency and accountability in selecting competent individuals for company governance.

Powers of Director:

• Managerial Powers

Directors possess managerial powers to run and supervise the day-to-day affairs of the company. They formulate strategies, frame policies, and ensure smooth operations across departments. Such powers include overseeing production, marketing, finance, and human resource functions. These powers must be exercised collectively through the Board of Directors, ensuring accountability and transparency. Directors cannot misuse managerial authority for personal benefit. Their managerial decisions must align with the Articles of Association and the Companies Act, 2013. By exercising these powers, directors bridge the gap between ownership and management, ensuring that the interests of shareholders and stakeholders are safeguarded.

• Financial Powers

Directors are vested with financial powers to manage the company’s funds and resources responsibly. They can approve investments, sanction budgets, and authorize borrowing from banks or issuing debentures within prescribed limits. Major financial powers, such as selling or mortgaging company assets, require shareholders’ approval. Directors ensure proper utilization of capital for maximizing returns and sustaining company growth. Their financial authority is bound by statutory provisions, ensuring no misuse of funds. Proper financial management by directors directly impacts profitability and stability of the company. Thus, their financial powers balance growth opportunities with compliance, risk management, and shareholders’ trust.

• Administrative Powers

Administrative powers allow directors to control internal structures, staff, and corporate governance of the company. They may appoint key managerial personnel, set employee policies, and establish rules for smooth working. Directors are responsible for ensuring compliance with statutory obligations, including filing of returns, maintaining records, and holding meetings. They also decide on operational policies, company infrastructure, and internal control systems. Administrative powers extend to forming committees for specialized tasks and delegating work efficiently. By exercising these powers, directors maintain discipline, efficiency, and legal compliance. Their role ensures the organization functions effectively within the corporate framework.

• Statutory Powers

Statutory powers are those expressly granted by the Companies Act, 2013. Directors have authority to issue shares, declare dividends, call general meetings, approve annual accounts, and recommend appointment or removal of auditors. They can also decide on amalgamation, merger, or winding-up subject to shareholders’ approval. These powers must be exercised collectively at board meetings and cannot be delegated beyond legal limits. Statutory powers ensure directors work within the legal framework, maintaining accountability to shareholders and regulators. By adhering to statutory provisions, directors protect the company from legal risks and enhance its credibility in the corporate sector.

Duties of Director:

• Fiduciary Duties

Directors act as trustees of the company’s resources and interests. They must always act in good faith, putting the company’s welfare above personal interests. Fiduciary duties include honesty, loyalty, and integrity in decision-making. Directors must not exploit corporate opportunities for personal gain or engage in activities conflicting with the company’s interests. They should protect the assets of the company, avoid misappropriation, and ensure all actions are in the best interest of shareholders and stakeholders. Their fiduciary role ensures the company is managed responsibly, ethically, and transparently, thereby maintaining trust and confidence among investors, employees, and the wider community.

• Statutory Duties

Statutory duties arise from the Companies Act, 2013 and other applicable laws. Directors must ensure compliance with statutory requirements such as filing annual returns, maintaining statutory registers, conducting board and general meetings, and preparing financial statements. They are responsible for adhering to corporate governance norms, safeguarding the company against legal violations, and ensuring lawful operations. Directors must also comply with SEBI regulations, labor laws, tax provisions, and environmental rules where applicable. Any breach of statutory duties may result in penalties, fines, or personal liability. These duties emphasize the director’s accountability to law, shareholders, regulators, and society at large.

• Managerial Duties

Directors have managerial duties to oversee strategic planning, operations, and performance monitoring. They are responsible for setting corporate policies, approving budgets, and ensuring efficient resource utilization. Directors supervise management teams, evaluate risks, and take corrective measures for sustainable growth. They play a vital role in decision-making regarding investments, expansion, and governance structures. Their managerial duties include balancing profitability with social responsibility while aligning with the company’s vision and mission. By coordinating with stakeholders, they maintain organizational harmony and competitiveness. Failure to exercise managerial diligence may lead to poor performance, mismanagement, and loss of trust in corporate leadership.

• Ethical Duties

Beyond legal and managerial obligations, directors owe ethical duties to ensure fairness, accountability, and integrity. They must promote transparency in financial disclosures, avoid corruption, and foster corporate social responsibility (CSR). Ethical duties also include protecting employee rights, ensuring customer satisfaction, and contributing positively to the community. Directors are expected to act as role models by adhering to high moral standards, thereby enhancing the company’s reputation and goodwill. They should also encourage diversity, inclusivity, and sustainability within the organization. Ethical conduct builds trust with stakeholders, strengthens brand image, and ensures long-term success by integrating moral values with corporate practices.

Removal of Directors:

The removal of directors is regulated under Section 169 of the Companies Act, 2013. A company may remove a director before the expiry of his term by passing an ordinary resolution in a general meeting. However, this provision does not apply to directors appointed by the Tribunal under Section 242 or those appointed by the principle of proportional representation under Section 163.

The process begins when a special notice of the intended resolution to remove a director is given by members holding the required voting power. The notice must be sent to the company at least 14 days before the meeting. Upon receiving the notice, the company must forward a copy to the concerned director immediately, allowing him the right to be heard at the meeting. The director also has the right to send a written representation, which the company must circulate to members or read out at the meeting if circulation is not possible.

Once the resolution is passed, the removal takes effect, and the company may appoint another director in the same meeting to fill the vacancy, ensuring continuity of management.

This procedure balances shareholders’ rights with directors’ protection, ensuring that directors are not arbitrarily removed while still holding them accountable to the owners of the company.

Number of Directors:

The number of directors in a company is governed by Section 149 of the Companies Act, 2013. Every company must have a minimum number of directors depending on its type: a private company requires at least two directors, a public company requires a minimum of three directors, and a one-person company (OPC) requires at least one director. The Act also specifies that the maximum number of directors a company can have is fifteen. However, this limit can be exceeded if a special resolution is passed in a general meeting of the shareholders.

Additionally, every company is required to have at least one resident director who stays in India for not less than 182 days during the financial year. Certain classes of companies, like listed companies, must also appoint independent directors to ensure transparency and good governance. For example, a listed public company must have at least one-third of its board comprised of independent directors.

The provisions relating to the number of directors aim to ensure proper management and accountability in companies. The requirement of independent and resident directors enhances the quality of decision-making, checks misuse of power, and safeguards the interests of shareholders and stakeholders.

Directors Identification Number:

The Director Identification Number (DIN) is a unique eight-digit number issued by the Ministry of Corporate Affairs (MCA), Government of India to individuals intending to become directors of a company. It was introduced under Section 266A to 266G of the Companies (Amendment) Act, 2006, and is now governed by the Companies Act, 2013. The DIN serves as a permanent identification number for directors, enabling them to be recognized across all companies in which they hold directorship. Once allotted, it remains valid for the lifetime of the director and does not require renewal.

The process of obtaining a DIN involves submitting an application through the MCA portal in Form DIR-3, along with necessary documents such as proof of identity, proof of residence, and a recent photograph. Digital signature certification is also required to authenticate the application. Upon verification, the Central Government issues the DIN within a short period. Every existing director of a company must intimate his DIN to the company, and the company, in turn, is required to inform the Registrar of Companies. Importantly, DIN details must be mentioned in all returns, applications, or information furnished under the Companies Act.

The introduction of DIN has enhanced corporate governance and transparency in India. It helps the government and regulatory authorities track the involvement of directors in multiple companies, prevent frauds like multiple identities, and hold directors accountable for compliance failures. Failure to obtain a DIN or non-compliance with related provisions can attract penalties for both the director and the company. By making directors identifiable and traceable, DIN has become a critical tool in ensuring responsibility, accountability, and efficiency in corporate management and regulation.

Key Managerial Personnel (KMP) are the senior executives of a company who play a vital role in its management, administration, and overall growth. According to Section 2(51) of the Companies Act, 2013, KMP includes the Chief Executive Officer (CEO), Managing Director (MD), Company Secretary (CS), Whole-time Director, Chief Financial Officer (CFO), and such other officers as prescribed. Since these individuals occupy critical positions, the law provides detailed provisions regarding the payment of their remuneration, ensuring fairness, transparency, and protection of stakeholders’ interests.

Legal Provisions under Companies Act, 2013:

The Companies Act, 2013, particularly Sections 196, 197, 198, and Schedule V, regulates the payment of remuneration to KMP. These provisions specify the maximum permissible limits, the approvals required, and the conditions under which remuneration can be paid.

• Overall Limit of Remuneration

The total managerial remuneration payable by a public company to its directors, including Managing Director, Whole-time Director, and Manager, in any financial year must not exceed 11% of the net profits of that company. This percentage is calculated in accordance with Section 198 of the Act.

• Individual Limits

A Managing Director or Whole-time Director or Manager cannot be paid remuneration exceeding 5% of the net profits. If there is more than one such director, the remuneration must not exceed 10% of the net profits for all of them together.

• Remuneration to Other Directors

Directors who are neither Managing nor Whole-time Directors may receive up to 1% of net profits, if there is a Managing/Whole-time Director, or 3% of net profits in other cases.

Modes of Payment of Remuneration:

Remuneration to KMP may be paid in the following ways:

1. Monthly Payment (Salary): Fixed regular salary for their services.

2. Commission: A share of the company’s profits, linked to performance.

3. Perquisites/Allowances: Benefits such as housing, medical, travel, or car facilities.

4. Sitting Fees: For attending meetings of the Board or Committees.

Payment in Case of No or Inadequate Profits:

Sometimes, companies may not earn sufficient profits to pay the prescribed remuneration. In such cases, Schedule V of the Companies Act, 2013 allows payment of remuneration to KMP within specified limits based on the company’s effective capital. The limits range from ₹30 lakhs to ₹120 lakhs per annum, depending on the size of the company. Beyond these limits, approval of the Central Government is required.

Approval Process:

1. Board Approval: Payment of remuneration must first be approved by the company’s Board of Directors.

2. Nomination and Remuneration Committee (NRC): In listed companies and certain public companies, the NRC recommends the remuneration policy.

3. Shareholders’ Approval: In cases where remuneration exceeds the prescribed limits, shareholders must pass a special resolution in a general meeting.

4. Central Government Approval: Required only if remuneration goes beyond limits specified under Schedule V without shareholder approval.

Corporate Governance and Disclosure:

To ensure accountability and transparency, companies must disclose details of remuneration paid to KMP in:

• Board’s Report

• Annual Return

• Corporate Governance Report (in listed companies)

This disclosure enables shareholders and regulators to evaluate whether the compensation is fair, reasonable, and linked to company performance.

Importance of Regulating KMP Remuneration:

1. Prevents Misuse of Power: Ensures directors and executives do not pay themselves excessive salaries.

2. Aligns with Shareholder Interests: Remuneration is linked with profits and performance.

3. Ensures Transparency: Disclosures allow stakeholders to assess fairness.

4. Encourages Professionalism: Helps attract and retain qualified professionals.

Statutory Meeting is the first general meeting of the shareholders of a public company limited by shares or a company limited by guarantee having share capital, which must be held within a specific period after incorporation. Under the Companies Act (earlier Section 165 of the 1956 Act; now omitted in the 2013 Act), it was compulsory to hold this meeting within six months but not later than nine months from the date on which the company became entitled to commence business. The main purpose of the statutory meeting was to inform shareholders about important matters such as share allotment, receipts of cash, contracts entered, and preliminary expenses. It ensured early transparency and accountability in company operations.

Functions of Statutory Meeting:

• Informative Functions

The primary function of a statutory meeting is to inform shareholders about the company’s initial affairs after incorporation. The Statutory Report, presented at the meeting, contains details such as the number of shares allotted, total cash received, preliminary expenses incurred, contracts entered into, and particulars of directors, auditors, and company secretary. This provides transparency regarding the financial and organizational position of the company in its formative stage. By furnishing these details, the statutory meeting allows shareholders to understand how their contributions are utilized and ensures that the promoters and directors act in good faith and within legal boundaries.

• Supervisory and Deliberative Functions

Another important function of the statutory meeting is to provide shareholders an opportunity to discuss, question, and supervise the activities of promoters and directors. Shareholders can raise concerns regarding contracts, expenses, or company policies, and can pass resolutions for modifications. The meeting ensures that the management is accountable from the very beginning and allows shareholders to guide the company’s future direction. It also serves as a platform for approving any preliminary contracts or proposals. Thus, the statutory meeting acts as a check on management powers, fostering confidence among members and ensuring a democratic start to company operations.

• Financial Functions

A statutory meeting helps shareholders evaluate the financial position of the company at the initial stage. Through the statutory report, details of share allotment, cash received, unpaid shares, and preliminary expenses are disclosed. This ensures shareholders are aware of how their money is being utilized. It also provides transparency about payments made to promoters, directors, or managers. Such financial disclosure enables shareholders to detect misuse of funds, irregularities in contracts, or excessive preliminary expenses. Hence, the statutory meeting plays a crucial role in building financial discipline, ensuring accountability, and establishing trust between management and members from the outset.

• Regulatory and Compliance Functions

The statutory meeting serves as a regulatory requirement, ensuring compliance with company law provisions. Holding this meeting within the prescribed time frame was mandatory for certain companies under earlier provisions of the law. Non-compliance could attract penalties and even affect the company’s right to commence business. The meeting also ensured that shareholders had early oversight of the promoters’ activities. By enforcing this obligation, the law intended to protect investors, especially small shareholders, against fraudulent practices. Thus, the statutory meeting functioned not only as a governance tool but also as a legal safeguard promoting transparency and fair corporate practices.

Contents of Statutory Report:

• Shares Allotted and Cash Received

The statutory report must state the total number of shares allotted, distinguishing fully paid-up and partly paid-up shares, along with the total amount of cash received in respect of such allotment. This ensures shareholders are informed about the capital actually raised by the company at the initial stage, providing clarity on its financial strength and utilization.

• Preliminary Expenses

It must include details of preliminary expenses incurred by the company, such as legal charges, fees for registration, expenses for drafting Memorandum and Articles, and payments to promoters. Disclosure of these expenses helps shareholders understand the costs involved in incorporation and ensures that funds raised by the company are utilized transparently without misuse by promoters or directors.

• Contracts to be Approved

The statutory report should contain particulars of any contracts entered into by the company that require approval at the statutory meeting. This gives shareholders an opportunity to examine, discuss, and approve such contracts, ensuring they are fair and beneficial for the company. It also prevents promoters or directors from binding the company to unfavorable agreements.

• Particulars of Directors, Auditors, and Secretary

The report must state the names, addresses, and occupations of the company’s directors, auditors, manager, and secretary. This information provides transparency about the people managing the company, their professional roles, and accountability. It also allows shareholders to know the responsible authorities overseeing the company’s financial statements, compliance obligations, and day-to-day administrative operations at an early stage.

• Arrears on Shares

Details of calls in arrears, if any, must be included in the statutory report. This shows the unpaid portion on shares by shareholders and highlights the financial obligations still due to the company. Such information helps shareholders assess the company’s working capital position, liquidity, and possible risks associated with defaulting members who have not paid their share contributions.

• Commission, Brokerage, or Underwriting

The report must disclose details of commission, brokerage, or underwriting paid or payable to promoters or intermediaries during the issue of shares. This ensures shareholders are aware of the promotional and fundraising expenses incurred by the company. It also helps them judge whether such payments were reasonable and necessary, preventing exploitation of company funds by promoters.

Members of Statutory Meeting:

• Shareholders (Members of the Company)

The primary participants in a statutory meeting are the shareholders, i.e., the members of the company. They attend to review the statutory report, raise questions, and seek clarifications regarding shares allotted, preliminary expenses, contracts, and management details. Shareholders have the right to discuss company affairs and pass resolutions. Their involvement ensures accountability of promoters and directors, promotes transparency in operations, and strengthens investor confidence in the company’s future governance, growth, and financial decision-making.

• Directors of the Company

All directors are expected to attend the statutory meeting. They play a crucial role in presenting the statutory report, answering shareholders’ queries, and explaining contracts, expenses, and financial matters. Their presence allows shareholders to interact directly with management and understand the company’s policies. Directors are accountable for ensuring that incorporation formalities were carried out properly, funds raised were fairly utilized, and promoters’ actions complied with legal requirements. Their active participation promotes trust and ethical corporate governance.

• Company Secretary and Auditor

The company secretary attends the statutory meeting to assist directors in administrative tasks, record proceedings, and ensure compliance with statutory requirements. The auditor, on the other hand, provides independent verification of the company’s accounts and expenses mentioned in the statutory report. Both play a vital role in ensuring transparency, accuracy, and accountability in the company’s early functioning. Their presence reassures shareholders that the company’s financial and legal disclosures are reliable, complete, and free from material misstatements.

A liquidator is an official appointed to carry out the process of winding up a company under the Companies Act, 2013. The liquidator may be appointed by the Tribunal, creditors, or members, depending on whether the winding up is compulsory, voluntary, or subject to supervision. The liquidator’s primary duty is to take control of the company’s assets, realize them, and distribute the proceeds among creditors, shareholders, and other stakeholders in accordance with legal priorities. The liquidator also represents the company in legal proceedings during liquidation and ensures that all statutory obligations are complied with. Once the process is complete, the liquidator files a final report, leading to the dissolution of the company by the Tribunal or Registrar.

Appointment of a Liquidator:

The appointment of a liquidator is an important step in the process of winding up a company. A liquidator may be appointed in cases of compulsory winding up by the Tribunal, or in voluntary winding up by members or creditors.

In the case of compulsory winding up, the National Company Law Tribunal (NCLT) appoints an Official Liquidator or a Company Liquidator. The liquidator is usually selected from a panel maintained by the Central Government. The liquidator’s appointment must be confirmed by the Tribunal, and he functions under its supervision and control.

In voluntary winding up, the company appoints a liquidator in a general meeting through an ordinary resolution (for members’ voluntary winding up) or through a creditors’ meeting (for creditors’ voluntary winding up). Once appointed, the liquidator’s details must be filed with the Registrar of Companies (ROC).

If the creditors and company nominate different persons, the creditors’ choice prevails. The liquidator remains in office until the winding-up process is complete, unless removed or replaced by the Tribunal. His appointment ensures proper realization of assets, settlement of debts, and fair distribution of surplus among stakeholders, ultimately leading to the company’s dissolution.

Powers of a Liquidator:

• Powers with Sanction of Tribunal

Certain powers of a liquidator can only be exercised with the approval of the Tribunal (NCLT). These include: instituting or defending legal proceedings in the company’s name, carrying on the company’s business for beneficial winding up, selling the company’s assets as a whole or in parts, raising money on the company’s security, and executing deeds or documents on its behalf. These powers ensure that the liquidator acts in the best interest of creditors and shareholders under judicial supervision. Such sanction provides checks against misuse of authority and safeguards fairness in the liquidation process.

• Powers without Sanction of Tribunal

The liquidator also enjoys independent powers that can be exercised without Tribunal approval. These include: collecting and realizing assets of the company, obtaining professional assistance from accountants, advocates, or valuers, taking custody of property, inspecting company records, and settling claims of creditors. He can also execute documents, make compromises regarding debts, and distribute surplus among members. These powers allow the liquidator to carry out day-to-day duties efficiently and ensure timely progress of winding up. However, the liquidator must always act in good faith, transparently, and within the framework of the Companies Act, 2013.

Duties of a Liquidator:

• Statutory Duties

A liquidator has certain duties mandated by law. He must take custody and control of all company property, maintain proper books of account, and submit necessary statements of affairs to the Tribunal and Registrar of Companies (ROC). He must convene meetings of creditors and members when required, keep them informed of progress, and file periodic reports. At the end of the winding-up process, the liquidator prepares a final report and statement of account showing how assets were realized and distributed. These statutory duties ensure legal compliance, transparency, and proper supervision of the winding-up process.

• Fiduciary and Administrative Duties

In addition to statutory requirements, a liquidator owes fiduciary duties to act honestly and fairly for the benefit of creditors and members. He must protect and preserve assets, realize them at fair value, and distribute proceeds in accordance with the law’s priority rules. He should avoid conflict of interest, ensure equal treatment of stakeholders, and not misuse company property. Administratively, the liquidator must represent the company in legal proceedings, recover debts, and settle claims efficiently. His role is both managerial and fiduciary, ensuring the winding-up process is conducted with integrity, impartiality, and accountability.

A Public company goes private when a acquiring entity (e.g., private equity firm, management group) buys all publicly traded shares. This delists the company from stock exchanges, concentrating ownership with a small number of private investors. Primary motivations include escaping the high costs and regulatory scrutiny (e.g., Sarbanes-Oxley) of being public, and gaining freedom to execute long-term restructuring strategies away from quarterly market pressures.

Conversion of a Public Company into Private Company:

Procedure (Section 14 & Rules):

1. Board Meeting → Pass a resolution to alter Articles of Association (AOA) by inserting restrictive provisions (transfer of shares, limit on members, no public invitation).
2. Special Resolution → Pass at General Meeting with 75% majority to approve conversion.
3. Approval of Tribunal (NCLT) → Prior approval of National Company Law Tribunal is required.
4. Filing with ROC → File altered AOA, special resolution, and NCLT order with Registrar of Companies.
5. New Certificate of Incorporation → Issued by ROC, confirming conversion into a private company.

Key Point: Conversion does not affect existing liabilities, debts, or obligations of the company.

Conversion of a Private Company into Public Company:

A Private company goes public via an Initial Public Offering (IPO), issuing new shares to public investors on a stock exchange. This provides access to vast capital for growth, facilitates acquisitions using publicly traded stock, and enhances prestige and liquidity for early investors and founders, albeit with significantly increased regulatory compliance and reporting obligations.

Procedure (Section 14 and Rules):

1. Board Meeting → Pass a resolution for conversion.
2. Alter Articles of Association (AOA) → Remove restrictive clauses (limit on members, transfer restrictions, public subscription prohibition).
3. Special Resolution → Pass in General Meeting with 75% majority.
4. Filing with ROC → Submit altered AOA and special resolution with Registrar of Companies.
5. Fresh Certificate of Incorporation → ROC issues a new certificate recognizing the company as a public company.

Key Point: Minimum requirements for a public company (7 members, 3 directors, no restriction on shares, etc.) must be fulfilled.

✅ In Short:

• Public → Private → Needs NCLT approval.
• Private → Public → Only requires alteration of AOA & ROC approval.

A company in India is a legal entity formed under the Companies Act, 2013 that has a separate identity distinct from its members. It is an artificial person created by law, capable of owning property, entering into contracts, suing, and being sued in its own name. The liability of members is generally limited to the extent of their shareholding. Companies in India may be private, public, or one-person companies, depending on ownership and regulatory requirements. By obtaining incorporation, a company enjoys perpetual succession and a common seal, ensuring continuity despite changes in ownership or management.

Classification of Companies: On the Basis of Incorporation

• Chartered Companies

A Chartered Company is a company incorporated under a special charter granted by the monarch or sovereign authority. Such companies derive their powers, rights, and obligations from the charter itself, and not from any general company law. They were more common in England during the colonial era, such as the East India Company. In India, this form does not exist under the Companies Act, 2013, as incorporation is regulated only through statutory law. However, it is studied historically to understand the origin and evolution of corporate entities and their governance structures.

• Statutory Companies

A Statutory Company is incorporated by a special Act of Parliament or State Legislature. Its powers, objectives, and management structure are defined in that Act itself. These companies are usually created for public utility services, such as transport, insurance, finance, and infrastructure. Examples in India include Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), Food Corporation of India (FCI), etc. Such companies are governed primarily by their special Act, but provisions of the Companies Act, 2013 apply wherever not inconsistent. They enjoy special privileges but also face stricter public accountability.

• Registered Companies

A Registered Company is one that is incorporated under the Companies Act, 2013, or any earlier company law in India. These companies come into existence after registration with the Registrar of Companies (ROC) and obtaining a Certificate of Incorporation. Registered companies may be private companies, public companies, or one-person companies. They derive their powers, objectives, and internal rules from their Memorandum of Association (MOA) and Articles of Association (AOA). Registered companies enjoy benefits such as separate legal entity, limited liability, perpetual succession, and transferability of shares, making them the most common form of companies in India.

Classification of Companies: On the Basis of Liability

• Companies Limited by Shares

A Company Limited by Shares is the most common type in India. In this form, the liability of each member is restricted to the unpaid amount on the shares they hold. If the company faces losses or is wound up, members are not personally liable beyond the unpaid value of their shares. This protects personal assets of shareholders, encouraging investment. Such companies may be private or public. Example: Most joint stock companies registered under the Companies Act, 2013 are limited by shares. This form ensures financial security for members and credibility for external investors.

• Companies Limited by Guarantee

A Company Limited by Guarantee is one where members’ liability is limited to a predetermined amount they agree to contribute at the time of winding up. Members are not required to pay during normal operations but must contribute up to the guaranteed amount if the company is liquidated. Such companies are usually formed for non-profit purposes, including charities, clubs, and research associations. They focus on promoting education, arts, science, culture, or sports rather than profit-making. In India, these companies are registered under the Companies Act, 2013, and may or may not have share capital.

• Unlimited Companies

An Unlimited Company is one in which the liability of members is unlimited. This means that if the company is unable to pay its debts during winding up, members are personally liable for the entire debt, even beyond their shareholding. Their personal assets can be used to meet the company’s liabilities. Such companies may or may not have share capital. Due to the high financial risk involved, unlimited companies are very rare in India. They are governed by the Companies Act, 2013 but are not generally preferred as they do not provide limited liability protection.

Classification of Companies: On the Basis of Members

• Private Company

A Private Company is one that restricts the right to transfer its shares and limits the number of its members to 200 (excluding present and past employees). It must have a minimum of 2 members and 2 directors. A private company cannot invite the public to subscribe for its shares or debentures. It enjoys certain privileges under the Companies Act, 2013, such as exemption from issuing a prospectus and holding statutory meetings. Private companies are widely preferred by small businesses and family-owned enterprises due to greater flexibility, privacy in operations, and less regulatory compliance compared to public companies.

• Public Company

A Public Company is one that is not a private company. It requires a minimum of 7 members and 3 directors, with no upper limit on membership. Public companies can invite the public to subscribe to their shares or debentures through a prospectus and can list securities on stock exchanges. They are subject to stricter regulations and disclosures under the Companies Act, 2013, ensuring transparency and protection of investors. Examples include large corporations like Reliance Industries, Infosys, and Tata Steel. Public companies are essential for raising large-scale capital and contributing significantly to the economic development of India.

• One Person Company (OPC)

A One Person Company (OPC) is a unique form introduced by the Companies Act, 2013, allowing a single individual to incorporate a company. It requires only one member and one director, though the same person can hold both positions. OPC combines the advantages of a sole proprietorship and a private company, offering limited liability and separate legal entity status while maintaining full control with the single owner. It cannot invite public investment and has restrictions on turnover and paid-up capital. OPCs are suitable for small entrepreneurs, professionals, and startups seeking the benefits of corporate structure with limited compliance.

Classification of Companies: On the Basis of Control

• Holding Company

A Holding Company is one that has control over another company, called a subsidiary company. Control is exercised by holding more than 50% of the equity share capital or controlling the composition of the board of directors. The holding company supervises policies, management, and financial decisions of its subsidiaries. This structure allows large corporate groups to manage diverse businesses under one umbrella. In India, provisions related to holding and subsidiary companies are defined under the Companies Act, 2013. Example: Tata Sons Limited acts as the holding company for several Tata Group subsidiaries in various industries.

• Subsidiary Company

A Subsidiary Company is one that is controlled by another company, known as the holding company. The control may be in the form of the holding company owning more than half of its share capital or controlling its board of directors. Subsidiaries may operate independently but remain accountable to their holding company. This structure helps in diversification, expansion into new markets, and better risk management. Under the Companies Act, 2013, a subsidiary can also be a wholly owned subsidiary if 100% of its shares are held by the holding company. Example: Infosys BPM is a subsidiary of Infosys.

• Associate Company

An Associate Company is one in which another company has a significant influence but is not its holding or subsidiary company. According to the Companies Act, 2013, significant influence means control of at least 20% of the total voting power or participation in business decisions under an agreement. Associate companies are often formed through joint ventures or strategic alliances to achieve mutual business goals. They provide opportunities for collaboration without full ownership. Example: Maruti Suzuki India Limited was initially an associate of Suzuki Motor Corporation before Suzuki increased its stake to make it a controlling shareholder.

Classification of Companies: Other types of Companies

• Government Company

A Government Company is one in which not less than 51% of the paid-up share capital is held by the Central Government, a State Government, or jointly by both. Such companies are established to undertake commercial activities on behalf of the government while enjoying operational flexibility. They are governed by the Companies Act, 2013, but also subject to government oversight. Examples include Steel Authority of India Limited (SAIL) and Bharat Heavy Electricals Limited (BHEL). Government companies play a vital role in infrastructure, energy, defense, and other key sectors contributing to the economic development of India.

• Foreign Company

A Foreign Company is one that is incorporated outside India but has a place of business in India, either directly or through an agent, branch office, or electronic mode, and conducts business activity in India. Under Section 2(42) of the Companies Act, 2013, such companies must comply with certain provisions of Indian company law, including filing documents with the Registrar of Companies (ROC). Examples include Microsoft Corporation (India) Pvt. Ltd. and Google India Pvt. Ltd. These companies bring investment, technology, and global business practices, contributing significantly to India’s growth and international trade relations.

• Small Company

A Small Company is a private company that meets the criteria specified under Section 2(85) of the Companies Act, 2013. As per the latest amendment, a company is classified as small if its paid-up share capital does not exceed ₹4 crores and its turnover does not exceed ₹40 crores. It cannot be a public company, holding or subsidiary company, Section 8 company, or a company governed by special laws. Small companies enjoy simplified compliance requirements, lower filing fees, and lesser regulatory burden, making them suitable for startups and small entrepreneurs seeking limited liability with ease of doing business.

• Dormant Company

A Dormant Company is one that has been formed and registered under the Companies Act, 2013 but is not carrying on any significant business or operations. It may also be a company formed for a future project or to hold an asset or intellectual property. Such companies can apply for the status of a dormant company with the Registrar of Companies to avoid heavy compliance requirements. They are required to maintain minimal compliance, such as filing annual returns. This provision benefits entrepreneurs who want to keep a company name or structure ready for future business opportunities.

• Section 8 Company

A Section 8 Company is one established for charitable or non-profit objectives such as promoting commerce, art, science, education, sports, research, social welfare, religion, or environment protection. It is registered under Section 8 of the Companies Act, 2013 and enjoys several privileges, such as tax exemptions and relaxed compliance norms. Unlike other companies, its profits cannot be distributed as dividends to members but must be reinvested to further its objectives. Examples include organizations like CII (Confederation of Indian Industry). Section 8 companies are crucial for promoting social development, community welfare, and philanthropic activities in India.

Incorporation means the process of forming and registering a company with the Registrar of Companies (ROC). Once incorporated, the company becomes a separate legal entity.

Steps Involved in Incorporation:

1. Application for Incorporation

• File an application with the Registrar of Companies (ROC).

• Application must be submitted in prescribed forms (SPICe+ form) along with required documents.

2. Required Documents (Section 7(1))

The following documents must accompany the application:

1. Memorandum of Association (MOA): Stating company’s name, objectives, and scope.

2. Articles of Association (AOA): Rules and regulations for internal management.

3. Declaration by professionals: An affidavit by an advocate, CA, CS, or CMA stating compliance with legal requirements.

4. Affidavit by subscribers and first directors: Declaring they are not convicted of offences related to company promotion/management.

5. Proof of address of registered office.

6. Particulars of subscribers to MOA (name, address, occupation, shares taken).

7. Particulars of first directors (name, address, DIN, consent to act as director).

3. Verification by Registrar (Section 7(2))

• ROC verifies documents and information.

• If found complete and valid → company is registered.

4. Issue of Certificate of Incorporation (Section 7(2))

• ROC issues a Certificate of Incorporation with a unique Corporate Identity Number (CIN).

• This is conclusive evidence that all requirements of the Act are complied with.

5. Effect of Incorporation (Section 7(3))

• Company becomes a separate legal entity.

• It can sue and be sued, own property, and enter into contracts.

6. Furnishing of False Information (Section 7(4) & 7(5))

• If false information is given during incorporation:

  • The promoters, directors, or persons furnishing false details are liable for action.

  • Company may be struck off or penalized.

✅ In short:

Application → Submit Documents → Verification by ROC → Certificate of Incorporation → Company gets Legal Status