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Unit 7: Companies Act, 1956

capital and membership within the limits imposed upon private companies by s.3(1) (iii), may Notes
become a private company by following the procedure as given:
(1) The company in general meeting has to pass special resolution for altering the articles so
as to include therein the necessary restrictions, limitations and prohibitions and to delete
any provision inconsistent with the restrictions. For instance, a private company has to put
certain restrictions on the right of members to transfer their shares.

(2) The word ‘Private’ should be added before ‘Limited’.
(3) The approval of the Central Government to the alteration in the articles for converting a
public company into a private company should be obtained.
(4) Within one month of the date of the receipt of the order of approval, a printed copy of the

altered articles must be filed with the Registrar.
(5) With thirty days of the passing of the special resolution, a printed or type-written copy

thereof should be filed with the Registrar.

7.7 Holding and Subsidiary Companies

Where a company has control over another company, it is known as the Holding Company and
the company over which control is exercised is called the Subsidiary Company. A company is
deemed to be under the control of another if:
(1) that other controls the composition of its Board of Directors; or
(2) the other company holds more than half in nominal value of its equity share capital (where
a company had preference shareholders, before commencement of this Act, enjoying
voting rights with that of equity shareholders, for the purpose of control, holding company
should enjoy more than half of the total voting power);

(3) it is a subsidiary of a third company which itself is a subsidiary of the controlling company.
For example, where company ‘B’ is a subsidiary of company ‘A’ and company ‘C’ is a
subsidiary of company ‘B’, then company ‘C’ shall be a subsidiary of company ‘A’. If
company ‘D’ is a subsidiary of company ‘C’, then company ‘D’ shall also be a subsidiary
of company ‘B’ and consequently also of company ‘A’.

7.8 One-man Company

A member may hold virtually the entire share capital of a company. Such a company is known
as a ‘one-man company’. This can happen both in a private company and a public company.
The other member/members of the company may be holding just one share each. Such other
members may be just dummies for the purpose of fulfilling the requirements of law as regards

minimum membership [Salomon v. Salomon & Co. Ltd.].

7.9 Non-trading Company or Association not for Profi t

As we shall see later, the name of a limited company must end with the word ‘limited’ in the
case of a public company and with ‘private limited’ in the case of a private limited company
(s.13). But, s.25 permits the registration, under a license granted by the Central Government,
of associations not for profi t with limited liability without using the word ‘limited’ or ‘private
limited’ to their names on certain conditions. Such a company must have the objects of promoting
commerce, arts, science, religion, charity or any other useful object and must apply its profi ts,
if any, or other income in promoting its object and must prohibit payment of any dividend to
its members. As soon as it obtains a license and is registered accordingly, it will have the same

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