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Private Limited Company is one of the most heard company because companies registered under this category have a mandatory rule that the name shall end with ‘Private Limited.’ Here, business assets and personal assets are maintained as a separate entity, i.e., members or shareholders are responsible only for their share of capital. It is composed of individuals known as shareholders, distributing the total capital of business as shares. Shares can also be transferred or sold to another individual with the consent of other shareholders. Private Limited Company can further be classified into three categories:
Limited by shares: ‘The members of the company having the liabilities limited to the amount mentioned in the memorandum of the company. The liability of the shareholder lies only for the share of paid-up capital invested in the company. It is one of the most widely adopted forms of business because of the maximum protection ensured to its members.
Limited by guarantee: ‘The liabilities of the members of the company is limited to such amount as the members are respectively undertaking to contribute to the assets of the company in the event of its being wound-up’ and the same is mentioned in the Memorandum of the Company. Memorandum of Association (MoA) is the bible for such type of companies. A shareholder is liable only for the amount of guarantee undertaken by him/her in the MoA. Also, this guarantee can be called just in case of winding up of the company to pay off all liabilities and creditors or sell assets or distribute assets to the partners or shareholders.
Unlimited company: ‘A company having no limit on the liability of its members.’ The liability of a member is extended to the whole amount of the company’s debts and liabilities. In case of winding up or loss or debts held by the company’s name, claims of the creditors can be met by the private estates of the members. Such type of company involves a huge risk for the debtors and maximum protection for the creditors.
One Person Company is most lucrative for the entrepreneurs who are capable of starting their venture all by themselves. It can be formed with just one Director, one Member and one nominee. There is no limitation on minimum paid-up capital requirements to incorporate the company but there is a maximum limit of paid-up capital and shall be converted into a Private/Public Limited Company once it reaches the threshold value.
It may sound similar to a sole proprietorship but is entirely different. One person company is a separate legal entity which requires registration. It ensures that debt repayment is not the sole responsibility of the owner. Merely owning a business does not account for having a One Person Company category. The principle of perpetual succession is also applicable here i.e. the existence of the company does not depend upon its members. Mishap or death of a member does not affect the company as a whole. The liabilities of the company does not fall upon the personal assets of the owner, hence the business can continue to run without worrying too much about liabilities and litigations.
Limited Liability Partnership is more commonly referred to as LLP. This type of company is governed by an Act of Parliament, i.e. Limited Liability Partnership Act 2008. It is formed with general partners operating under partnership rules. Herein, no partners have unlimited liabilities all the partners and designated partners enjoy the benefits of limited liabilities. The maximum liability of remaining partners is restricted to the amount or extent of his investment in the company. LLP is a legally identifiable company having its Permanent Account Number. It allows members to balance between ownership and liability protection since no individual partner is responsible for another person’s misconduct or fault. This structural entity is more suitable for professional services, ad agencies, marketers, and other skill-based.
Section 8 Company is registered under the Ministry of Corporate Affairs (MCA), Government of India and licensed under Section 8 of the Companies Act, 2013. These companies enjoy the highest privileges and thereby seek the highest attention from Government departments, donors and other stakeholders. With the non-profit objective, the company enjoys greater flexibility. There is no restriction on minimum paid-up capital, and such companies are also exempted from Stamp duty registration in few states. Furthermore, donors are interested in investing large sums of money into Section 8 companies because of the tax deduction benefit enjoyed under section 12AA and under section 80G of the Income Tax Act.
The term may look heavy, but some of the renowned names such as Reliance Foundation, Tata Foundation, OTC (Over the Counter Exchange of India) fall under this category. These are the companies registered for special purposes such as for promoting research, social welfare, charity, religion, art, science, commerce, sports, education, etc. These are not-for-profit companies, formed to achieve a fixed goal varying from the protection of the environment to youth development in a nation. Any income or profits so obtained are also dedicated to promoting the objectives of the company. It is closely similar to a Trust, Society or Association where the members are not paid any dividend.
‘A Company, whether Private Limited or Public Limited, who works with the objective of social welfare as well as for the protection of environment without any intention to get any profit or dividend can function as a Section 8 company.’
In Nidhi Company ‘Nidhi’ means treasure or to finance or fund. The main objective of the company is to build the habit of saving among its members. It is just like a public limited company and needs a minimum of seven members and three directors to register it. This terminology is mainly used in the banking industry, also known to be ‘Mutual benefit companies.’ They are incorporated with an aim to build a money reserve, receive deposits and lend to its members. This structure is different from the other business forms in the sense that any person who is a member of Nidhi company can make deposits or borrow loans whenever the need arises. The main objective is to utilize funds and promote savings to strengthen the financial conditions of its members.
Public Limited Company can offer its shares to the public. It can issue registered securities such as Initial Public Offering (IPO) and Further public offer (FPO). These shares can be acquired, sold or traded by anyone to anyone merely by filling and signing a form or through digital mode. The shareholders of the company may vary on a daily basis, based on regular trading. It determines the market value of a company. Issuing shares to different shareholders increase the flexibility of the business as compared to being a sole trader, and a provision is created for dividends, rights, and restructuring of the company.
It is the most transparent form of business, in which the exact financial position of the company is clear to owners, investors, and shareholders (public). In other words, the owners and managers of a public limited company are granted limited liability. The members of the company, both shareholders and directors, hold no liability to the creditors of the company. Also, since a large amount of money from a large number of people is involved in the company’s capital, there are restrictions on selling company assets to pay any liabilities. The rules and regulations are the most stringent.
It is the purest and most accessible form of business, also referred to as a Sole Proprietorship. As the word ‘sole’ indicates, there is only one owner. He has unlimited liabilities and single-handedly controls the entire business. The owner himself holds the legal status of the firm, so the concept of a board of directors or shareholders does not remain valid here. There is no distinction between legal and financial identities of the business and the business owner. Only the owner is responsible for all the profits, losses, liabilities, debts or any legal issues encountered while running the business. The biggest advantage is that there are no form fillings or going through delayed legal procedures to start a sole proprietorship. The provision for not taking a specific registration may vary depending upon the type of product or service provided by the owner and on national laws, local rules, and regulations. However, with the good part, comes the bad as well. In case the owner undergoes any mishap or dies, the business’s existence becomes questionable and comes under the scrutiny of the law. It might lead to the dissolution of the firm unless the firm was already legally transferred to another individual.
It is quite similar to the sole proprietorship firm in the sense that a partnership firm too, is not a legal entity separate from its members or herein referred to as partners. Hence unlike a company, it does not enjoy the advantages of corporatization. ‘Firm’s property,’ ‘employees of the firm,’ ‘suit against the firm’ etc. are nothing but the ‘property of the partners,’ ‘employees of the partners’ and ‘suits against the partners.’ In all, a partnership firm is wholly owned by its partners except to levy taxes. In the case of taxation, the identity of the composing partners is distinct from that of the partnership firm. They are governed under Indian Partnership Act, 1932. This type of business is appropriate if business responsibilities require a division between two or more people. A co-owner or co-owners share the burden of losses and debts incurred in the name of the company. Business and legal, both liabilities fall upon each partner equally or unequally depending upon how the ownership
After the company gets the certificate of incorporation (COI) there are many compliances which the company has to do within the specified time limit few are as follows:
- Conduct a board meeting within 30 days from the date of the incorporation
- Open a bank account of the company and deposit the paid-up capital into the company’s account
- After receiving the paid-up capital issue the share certificate in respect of the capital subscribed by the shareholders of the company
- Appoint the Auditor of the company within 30 days after the incorporation
- File a form INC-20A within 180 days of its incorporation for the commencement of business to the registrar.
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