Types of Company, Details

There are so many basis to determine the classification of company.

Basis may be function of company, may be objectives of company and may be form of company.

Basis;

Function/Objectives
Profit making company and profit not distributing company.

Responsibility of shareholders in terms of company’s liability

1. Limited liability company
2. Unlimited liability company
3. Guarantee company

All companies are supposed as limited liability Company in the context of Nepal as per the provision of the Companies Act 2063. But in UK and India, there may be unlimited liability company.

Country of incorporation

1. Foreign company
2. National company

Basis of profit sharing
Profit-sharing and profit not - sharing company

Mode of capital formation
Public company& Private company

Modality of control
Holding & Subsidiary company

Investments by Government or Private sector
Private company/Government Company/Public Company

But generally, there are following types of companies;

• Guarantee and Unlimited company
• Private company
• Public company
• Company not distributing profit.
• Government company
• Foreign company
• Holding and subsidiary company

Guarantee and Unlimited Company

• On the basis of liability to be beard
• Generally, non-trading companies are formed with a guarantee of liability. A company limited by a guarantee of its members. Such companies are formed for the promotion of art science, culture and sports etc. Such company may be registered with or without share capital.
• The article of association shall state the numbers of members with which the company is to be registered section 27(2) of Indian company Act.

• Section 13 (3) of the Indian company Act provides memorandum of company limited by guarantee; following things shall be mentioned,

• Payment of liabilities of company or of such debts to the extent of particular limitation

• Payment of costs, charges and expenses of winding up

• Adjustment of right of contributories among themselves, such amount may be required, not exceeding a specified amount.

• The liability is already guaranteed, not exceeding a specified amount;

• No Shareholders, only members

• No guarantee company under the Companies Act 2063 of Nepal

Unlimited Companies;

• Section 12 (2) (C) of Indian Companies Act 1956 - two or more persons may form or incorporate company with or without liability. The members are liable for the company’s debts in proportion to their respective interests in the company. The members’ liability is unlimited –There is no share capital.
• Section 27 (1) of Indian company Act 1956 - The AOA shall state the numbers of members with which the company is to be registered. Though in these days such companies are very rare.

Private Company

On the basis of the numbers of shareholders, size of capital and mode of capital formation.

• Section 2(b) of the companies Act 2063 B.S, of Nepal any private company incorporated under this Act. Section 3(1) (iii) of the Indian Company Act states that a private company means a company which has minimum paid up capital of Rs. One lakh or such higher paid up capital as may be prescribed by its Articles of Association.

• The nature of private company can be understood from section 3(1), 9,10, and chapter - 14 and 15 of the Companies Act 2063 B.S.

• The minimum number of shareholder of private company shall be one and the maximum numbers of shareholders shall not exceed 50.

• Company Act 2063. Section 9 (1) –The numbers of shareholders of a private company shall not exceed 50.

• Section 9(3)- If any employee purchased a share of a company under a scheme of selling shares to its employees or any employee who has already purchased a share under such scheme but is not in service of company for the time being shall not be counted shareholder.

• As per section 10(b) of the companies Act 2063 BS.- A private company shall add the words Private Limited to it a name as the last word. Public company only ‘limited’ .

• However, the profit not distributing company has no compulsion to add pvt.ltd. and ltd.

• Section10 (c) - Private company shall not sell its shares publically.

• Section10 (d) –A private company shall not pledge or otherwise transfer the title to, its securities to any person other than its shareholder without fulfilling the procedures consensus agreement.

• Section 145- “Special provision relating to private company regarding Consensus Agreement”

• Section 145(h)- Provision relating to no board of directors.

• Section 148- Holding of annual general meeting not required, If the consensus agreement is concluded in this regard.

• Section 150- Deemed participation in general meeting.

Communication contract

• Hearing, reading and speaking is same as participation (Video Conference Meeting)

• No need to be physically presence.

• Section 42 (2)-Restriction on sale or pledge of shares or debentures.(Private company may put the provision of restriction clause regarding transfer of in MoA, AoA, and Consensus Agreement)

• No need to take prior permission from company register office to run business. Section 63(1) is for only public company.

• No need to publish the prospectus publicly. Section 23 is for only public company.

The private company can be divided in to two types on the basis of numbers of shareholders

Single Shareholder Private Company;

• Provision relating to single shareholder company Section 152 –Not required to call Meeting of Board of Directors and General Meeting.
• Section 153 - Transfer or transmission of shares of single shareholder company,

Company having more than Single Shareholder;

• Minimum 2

• Maximum 50

Merits of Private Company;

• Privilege of not taking permission to run business

• Public company must take letter of approval before the running of business .But in case of private company is no such compulsion. (Section 63 of Nepalese companies Act).

• Simplicity in incorporation

  • Even one man can establish company.
  • No need to submit even Articles of Association in Single Shareholder Company.(Section, 4 (2)).
  • No need to publish prospectus. (Section 23)
  • Convenience to run business from family members from family members of few close persons.

• Flexibility in Formation of Board of directors other formalities relating to this matters.

  • Easy to run business or run company.
  • No need to call meeting in single shareholders company
  • No need to form BOD in all types of Private Companies.
  • Long-life board of directors but Public Company’s directors’ tenure is only 4 years.
  • The tenure can be determined by MOA, AOA, and Consensus Agreement in private companies.
  • No compulsion to run general meeting
  • No need to be gathered physically. Meeting through communication contract is possible.
  • That is why, Private company is privileged company

Public Company;

If we look the Companies Act 2063 BS of Nepal there is no specific definition of public company.

• Sec2 (c) of the Nepalese Companies Act defines “Public means any company other than a private company”
• As per the section 3(1) (iv) of the Indian Companies Act 1956 , (amended in 2000) - A public company means a company which;

• is not a private company

• has a minimum capital of RS. 5 lakhs or such higher paid up capital, as may be prescribed.

• is a private company which is a subsidiary of a company that is not a private company.ie. That is subsidiary of public company.

• In India, private company must have Minimum paid up capital 1 lakh, public 5 lakh.

• in India, Numbers of members in private company is 2. Public company is at least 7 .Maximum number of private company cannot exceed -50, No limitation of members in public company.

• Generally- there are following features of public company as per the provision of the Nepalese company Act.

• There must be at least 7 promoters - Section 3(2) of the Nepalese companies Act. There shall be a minimum of 7 promoters for the incorporation of a public company, provided, however, those 7 promoters shall not be required for the incorporation of another public company by any already existed public company.

• Mega Bank has 1358 promoters.

• section 10(b) public company shall add the word ‘limited’ to its name as last word.

• Sec -10 (C) - A private company shall not sell its shares /debentures publicly. It means public company can. As per section 42( 1) of the companies Act ‘’ the share or debenture of a company may be sold or pledged like a movable property”.

• Generally there is no restriction in share transfer or sell in public company (Section 42(1)), but until the first general meeting held and the call share amount fully paid up, the shareholder shall not be entitled to sell or pledge.

• Every public company shall obtain approval for commencing business section-63(1)

• Public company –the tenure of directors shall not exceed 4 years. But in case the directors is appointed by Nepal government or corporate body, as per appointing body desires.

• there should be at least 3 directors.

• For public company, notice in advance at least 21 days for general meeting. General meeting must be conducted as pursuant to chapter 5 section 67, to 85.

• Minimum Paid of capital of public company ten million, section 11, but some special laws such as BaFI Act and Insurance Act have determined more than ten million paid up capital for such special public company.

• Compulsory in publication of the prospectus, section 23, 24 / MOA should be published for the purpose of notification for the general public.

• Every public company shall have a BOD minimum 3 and Maximum 11- section 86 (2)

• The terms office of directors shall be specified in its AoA which shall not 4 years section 90(2), but in case of a private company that is specified in AoA, no limitation of 4 years of tenure.

• To be incorporated only as a public company to carry on some specific transaction business of; ( section 12)

• Banking Financial Transaction

• Insurance Business

• Stock Exchange Business

• Pension Fund

• Mutual Fund

• And for such other business.

• Not a privileged more formalities, more expenses in operation

• More investors – Few persons move the company

• Prospectus to be published as per section 23, 24

• More supervision from the regulatory for protection of investors’ interest.

• Appointment of company secretory section 185.
  Different procedures regarding share management. Face value determined by law section 27( 2), allotment of shares section 28, power to issue premium share section 29, dealing in securities section 32, shares with different rights section 30, procedures issuing debenture section 35.
  Types of Public Company

Public company can be divided in to two kinds on the basis of modes of selling or purchasing of shares or debentures in stock market.

Listed Public Company

• Chapter 4, Section 27, 28 etc.
• Section 32, Dealing in securities
• Listed in Nepal stock Exchange Market Ltd for the purpose of selling and purchasing of shares and debentures.
• Openly traded in shares market.
• There may be thousand and lakhs of shareholders in Society.
• Such listed public company must have audit Committee.(section 164,165) ( if 30 million or more than this)
• Listed public company must obtain approval for issuing shares in public and must inform about the position of shares and debenture to concerned regulatory such as; Company Registrar’s Office, NRB and Insurance Board etc.
• Dealing in securities is governed by the Securities Act 2063 BS

Not listed Public company

• Not listed in Stock Exchange Market.
• Other than listed public companies.

The public company also can be divided in to two types on the basis of identification of investment;

1. Investment made by general public - Public Company
2. Investment made by government - Government Company

In India;

Deemed public company like hybrid nature

• Mix of nature of private and public company

• If any public company invests in private company

• If any private company collects fund from General People.

• As per the provision of the section 43 (a) of Indian Company Act following nature private companies are supposed as public company

  • If any one or more institutions hold more than 25% of paid up capital of any private company.
  • If private companies turnover of transaction is more than 10 million per year in a particular period.
  • If any private company holds the at least 25% paid up capital of any public company.

There is no such concept of deemed public company in Nepal as per the Nepalese Companies Act.

Conversion of Private Company into Public Company; (Section 13 of Nepalese Companies Act)

Voluntary conversion or Conversion by choice

Section 13(1) (a) Voluntary;

• Taking decision to convert into a public company
• There must be special resolution
• Not capable of being converted into a public company unless and until it fulfills the requirements to be fulfilled under the law for being a public company.
• AOA /MOA must be amended
• Apply to company registrar office with amended MOA/AOA
• If there are new shareholders submission of citizenship
• Required registration fee for public company
• The statutory provision for public company must be compiled
• Paid up capital- Minimum 10 million
• At least 7 shareholders or promoters

Compulsory or Mandatory (Section 13(1)(b)and (c));

• 25% or more of the shares of a private company are subscribed by one or more than one public company. However any shares are possessed by any banking of finance company as trustee, not counted.
• 25% or more of the shares of a public company are subscribed by private company-such private company.
• CRO issues the conversion certificate.

Conversion of Public Company in to Private Company (Section 14)

Only mandatory,

• It depends upon the circumstances.
• Circumstances of conversion of public company into private company are;
• If the number of shareholders of a public company become less than 7.
• If public company fails to maintain the required paid up capital because of reduction of capital.
• In such situation, public company shall make necessary amendments in MOA and AOA and must be converted into a private company within 6 month.
• Application to ‘CRO,’ CRO will give a company conversion certificate.

Government Company;

• In the past many years ago, there was a time when the state was concerned only with problems relating to maintenance of law and order.
• But now the relationship between the state and economy has under gone a considerable change.
• Sometime it is needed that state has to participate in industrial development of country
• The legal provision relating to Government Company is the way to make enable the state to undertake business ventures and to combine the operating flexibility privately organized companies with the advantage of state regulation in the matters of public interest.
• Due to nature of business, some business must be undertaken by state i.e.; oil, salt, agriculture inputs, communication business only private sectors may not manage such business in the countries like Nepal.
• There was a special provision relating to government companies under the past Act company Act 2021
• As per the section 137(a) of this past Act there were two ways to establish government company .These are;
• Having 51 or more than 51 % shares by government.
• Establishing the company by providing shares only for government entities. There is no separate provision and definition regarding Government Company in the present Nepalese Companies Act 2063.
• Presently govt. companies are incorporated as public company, not giving name govt. company e.g. RBB
• As per Section 173 of present Nepalese Companies Act, government companies shall be converted into public company.
• Nepalese Companies Act 2063 has promoted the privatization process for corporations or government companies.

Foreign Company

• Section 2(f) of the Companies Act 2063 B.S.
• Foreign company means any company incorporated outside the state.
• If Company registered in the foreign country want to transact in Nepal, that types of company must be registered in Nepal
• Section 154 to 158 ( Chapter -16) of Nepalese Companies Act.
• Foreign company cannot establish branch office or liaison office in Nepal without registered in the CRO of Nepal.
• Those types of foreign company cannot issue dividend or share without registered in Nepal.

Company Not Distributing Profit

• Section 2(h) of Nepalese Companies Act - definition
• Any company incorporated under chapter -19, Section 166 & 167 of Nepalese Companies Act.
• Such company shall not be entitled to distribute or pay to its members any dividends or any money out of profit earn or saving made for the attainment of any objects.
• For the purpose of charitable objectives.
• For the promotion of invention, art, science and social activities, etc.

Holding and Subsidiary Company

• When a company has control over another company, it is known as a holding company. The company which is so controlled is known as a subsidiary company.
• If there is another subsidiary company of any company such company is holding company.
• A company qualifies as a holding company when it has power to control the composition of the board of directors of another company or holds a majority of its shares.
• But both are separate company in the eye of law. A subsidiary company, even a 100 % subsidiary, is separate legal entity and its creator and controller is not to be liable for its acts merely because this company is creator and controller. Nor is subsidiary to be held as an asset of holding company.
• The subsidiary company is not branch of holding company. It has different existence or personality than holding company. Holding company is holding company. Because of only a nominal majority on share capital of the subsidiary or because of only control over the board of directors.
• But when law and judicial observation permit to examine the transaction of holding and subsidiary company then the subsidiary company may lose some time its separate identity to that extent. It is necessary for the better information of accounts and financial position of group as a whole to the creditor shareholders and public.

Condition of Holding and subsidiary Relationship;

1. Where the composition of BOD is controlled by other company.
2. Where the other company holds significant value of its equity share capital.
3. Where one company is subsidiary of any company that is another’s subsidiary.

• Holding and subsidiary company are supposed as separate legal entity. Sometime court can observe the relationship and ignore their separate legal entity on the basis of the doctrine of lifting the corporate veil. Such happens on the particular issue only.
• Section 2(d) of Nepalese Companies Act 2063 B.S. defines holding company as having control over a subsidiary company.
• Section 2(e) of this Act defines Subsidiary company as any company controlled by a holding company
• There is some special legal provision mentioned in Nepalese Companies Act Chapter -13, Section 142, 143 and 144, by these legal provisions holding and subsidiary company can be found in the context of Nepal.

Section 142- control over subsidiary company –

1. By holding direct or indirect control over the formation of the Board of Directors.
2. By holding majority shares of the company.

• A subsidiary of one subsidiary company will be the subsidiary of the holding company.
• Section 143 - Documents to be enclosed
• Any holding company shall enclose the documents of its subsidiary company in its balance sheet.

Section - 144; Prohibition on investment in holding company - No subsidiary company shall purchase the share or debenture of holding company or make investment in holding company