Page 201 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 3. If the number of members is below seven, steps should be taken to increase it to at least
seven whilst the number of directors should be increased to at least three, if there are only
two directors.
4. The word ‘Private’ is to be deleted before the word ‘Limited’ in the name.

7.5.5 Conversion of Public Company into a Private Company

There is no direct or express provision in the Act for the conversion of a public company into a
private company except a reference in the proviso to s.31(1). A public company having a share
capital and membership within the limits imposed upon private companies by s.3(1) (iii), may
become a private company by following the procedure as given below:
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 typewritten copy
thereof should be filed with the Registrar.

Task The directors of a public limited company accepted a bill of exchange on behalf of
their company. But the word ‘Ltd.,’ was omitted from the name of the company at the time
of acceptance of the bill of exchange. Who can be held liable for the payment of the bill?

7.5.6 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’.
Thus, in order to be holding company, a company must either control the composition of the
Board of Directors or hold more than half of the nominal value of the equity share capital of
another company.

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