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Unit 3: Kinds of Companies

Introduction Notes

In the case of a body corporate which is incorporated in a country outside India, a subsidiary or
holding company of the body corporate under the law of such country shall be deemed to be a
subsidiary or holding company of the body corporate within the meaning and for the purposes
of this Act also, whether the requirements of this section (S.4) are fulfilled or not.
A private company, being a subsidiary of a body corporate incorporated outside India, which, if
incorporated in India, would be a public company within the meaning of this Act, shall be
deemed for the purposes of this Act to be a subsidiary of a public company if the entire share
capital in that private company is not held by that body corporate whether alone or together
with one or more other bodies corporate incorporated outside India.

3.1 Classification on the Basis of Incorporation

Companies can be classified into three categories according to the mode of incorporation. If a
company is incorporated by a charter granted by the monarch, it is called a Chartered Company
and is regulated by that charter. For example, the East India Company came into being by the
grant of a Royal Charter. Such types of companies do not exist in India. A company which is
created by a special Act of the Legislature is called a Statutory Company and is governed by the
provisions of that Act. The State Bank of India and the Industrial Finance Corporation of India
are two examples of statutory companies. A company brought into existence by registration of
certain documents under the Companies Act, 1956 is called a Registered Company.

3.2 Classification on the Basis of Liability

The liability of members of a registered company may be limited or unlimited (s.12). It may be
limited by shares, or by guarantee or by both (i.e., shares and guarantee).

3.2.1 Companies Limited by Shares

A company limited by shares is a registered company having the liability of its members
limited by its memorandum of association to the amount, if any, unpaid on the shares respectively
held by them. The amount remaining unpaid on the shares can be called up at any time—during
the lifetime of the company or at the time of winding up. However, a shareholder cannot be
called upon to pay more than the amount remaining unpaid on his shares. His personal assets
cannot be called upon for the payment of the liabilities of the company, if nothing remains to be
paid on the shares purchased by him. Such a company is also known as a ‘Share Company.’
3.2.2 Companies Limited by Guarantee

A company limited by guarantee is one having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake by the memorandum
to contribute to the assets of the company in the event of its being wound up. Such a company is
also known as ‘guarantee company’. The liability of the members of a guarantee company is
limited by a stipulated sum mentioned in the memorandum. The guaranteed amount can be
called up by the company from the members only at the time of winding up if the liabilities of
the company exceed its assets.
A pure ‘guarantee company’ does not have a share capital. The working funds, if required, are
raised from source like fees, donations, subsidy, endowments, grants, subscriptions and the
like. Such a company is generally formed for the purpose of promotion of art, science, culture,
charity, sport, commerce or for some similar purpose.

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