Difference between Private Company and Public Company.

Q. Distinguish between a private and a public company.

Ans. Though both private and public companies are incorporated according to the provisions of the Indian Companies Act, there are basic differences between the two which are listed in the following table:

Sr. No.	Basis	Private Company	Public Company
1.	Number of Members	The minimum number of members is 2, and the maximum excluding the present and past employees is 200.	The minimum number of members is 7 and the maximum can be as many as the number of shares of the company.
2.	Invitation to the Public	A private company cannot invite the public to invest in its shares. It needs to arrange the required capital from its own sources.	A public company arranges the total capital requirement from the public. To do that, it invites the public to invest in its shares and debentures.
3.	Allotment of Shares	A private company can allot shares immediately on the receipt of the incorporation certificate.	A public company cannot allot its shares to the public.
4.	Commencement of Business	A private company can commence its business immediately on the receipt of the certificate of incorporation.	A public company cannot commence its business so long as it gets an official letter of commencement to do so.
5.	Issue of Prospectus	A private company cannot issue a prospectus or a statement in lieu of a prospectus.	It is mandatory for a public company to issue a prospectus. In the absence of a prospectus, it is necessary to issue a statement in lieu of a prospectus.
6.	Transfer of Shares	The transfer of shares (if any)is restricted to specified limitation.	The transfer of share is not restricted and is at the will of shareholders.
7.	Preparation of Articles	Preparation of Articles is mandatory for a private company.	Preparation of Articles is not compulsory in a public company. In case the Articles are not registered, the provisions of Schedule 1A Table shall be applicable.
8.	Issue of Bearer Share Warrant	A private company cannot issue bearer share warrants.	A public company may issue bearer share warrants if the shares of the company are fully paid-up.
9.	Number of Directors	There must be at least two directors.	There must be at least three directors.
10.	Qualification Shares	It is not mandatory for the directors to have qualification shares in a private company.	It is mandatory for the directors of a public company to have qualification shares.
11.	Increase in Number of Directors	A private company can increase its number of director without the permission of Government.	A public company cannot increase the number of its directors without the permission of the Central Government.
12.	Loan to Directors	It is not necessary for a private company to get prior permission of the Central Government to give loan to its directors.	Prior permission of the Central Government is necessarily required for a public company to give loan to its directors.
13.	Retirement of Directors by Rotation	It is not required by law for the directors of a private company to retire by rotation.	One-third of the directors of a public company are required to retire by rotation.
14.	Filing of Documents	A private company need not submit the following documents to the Registrar of Companies: (a) list of directors (b) consent of directors (c) copy of any contract with the directors.	For the incorporation of a public company, it is compulsory to file these documents with the Registrar of Companies.
15.	Share-Capital	The minimum paid-up Share-Capital should be ₹1,00,000.	The minimum paid-up Share-Capital should be ₹5,00,000.

Q. Difference between Private Company and Public Company.

Procedure for incorporation of a public Company.

 Q. Explain the steps to be taken or a procedure to be followed for the incorporation of a Public Company. 

Ans. Incorporation is the second stage of company’s formation, which is done by getting the company registered with the Registrar of Companies. The required fee for registration is paid and the certificate of Registration is obtained from the Registrar of companies. The company becomes an entity only after it is registered. It is, therefore, said that floatation is the conception of a company whereas the incorporation is its birth when it takes on the form of an artificial person. So long as a company is not incorporated, it cannot be called a ‘company’ from the legal viewpoint and it has not entity as such. After completing the promotional work and before getting the company registered, the preparatory steps are as under:

Procedure for incorporation of a public Company.

1. Preliminary Activities: Before a company is incorporated, the promoter has to do the following: 

(i) To decide where the registered office of the company will be located: The promoters, as a first step, must decide in which state will the headquarters of the company be located. It is necessary to do so because the company must be registered with the Registrar of Companies of the state where it has its head office.

(ii) To decide the name of the company: Before it is given a name, it is necessary to ascertain from the Registrar of Companies whether the proposed name of the company is available or not, and whether the name is acceptable. Although a company can be given any name, yet it must conform to the provisions of the Indian Companies Act — i.e., the company’s name should not be similar to that of an existing company and should be appropriate as per the directives of the Central Government. The word ‘Limited’ must be used at the end of the company’s name. For the acceptance of the company’s name, the promoters need to make an application, through the Registrar of Companies, to Company Department of the Central Government. For the availability of name, it is mandatory to sen̈d at least three names for approval of any one of them.

(iii) To make appointments: It is also required to appoint underwriters, brokers, bankers, solicitors, auditors and signatories on the memorandum of the company. 

(iv) To get the important documents prepared: The preliminary activities include preparing the memorandum and articles of association of the company and getting them printed.

(v) To send the application to the Registrar: After completing the above mentioned formalities, the promoter makes an application to the Registrar of Companies of the state in which the company is to established for the registration of the company. The documents that need to be filed with the application are as under:

2. Documents to be Filed with the Registrar: 

(i) Memorandum of Association: This is a very important document. No conce company can be incorporated without having a Memorandum of Association. A company’s memodandum of association is its charter and under the provisions of the act defines its rights and obligations. The memorandum defines the basic objectives for which the company is allowed to be incorporated.  For a public company, a minimum of seven and for the private company, a minimum of two persons need to be signatories, i.e. subscribers to the memandum of association. Each signatory must give his address, description and occupation etc. and number of shares subscribed by him. The subscribers must sign these documents in the presence of atleast one witness who shall attest the signature. The documents should also bear the date.

(ii) Articles of Association: This document defines the rules that the activities of the company in the attainment of its objectives. The document must be properly stamped, duly signed by the signatories of the memorandum and witnessed. The articles must be printed and in paragraphs. The articles of association are optional in the case of a public limited company with limited liability, which may adopt Table A, the model set of articles, in its entirety. If the company adopts Table A, the fact must be specified by writing ‘Registered without Articles’ on the memorandum.

(iii) Information about the Head Office of the company: The address and location of the company’s registered office must be communicated to the Registrar of Companies. This information can also be given within 30 days of the registration of the company.

(iv) List of Directors: A list of persons who have agreed to function as the first directors of the company must also be communicated to the Registrar. The list of directors must have their names including surname or family name. Director Identification Number, residential address, nationality, proof of Identification etc.

(v) Written Consent of Directors: Not only is a list of the directors mandatory, it must also be sent by the secretary of the company along with their written consent to act in that capacity. The written statement must be signed by each director who has agreed to work in that capacity. An affidavit from each of the subscribers to the memandum and from persons named as the first directors, if any, in the article, that he is not convicted of any offence in connection with the promotion, formation or management of any company, or has not been found guilty of any fraud or misfeasance or any breach of suty to any company under this Act or any previous company law during the preceeding five years and that all information filed in the documents with the Registrar for registration of the company is correct and true to the best of his knowledge and belief.

(vi) Statutory Declaration: A declaration in the prescribed form by an advocate, chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of company, and by a person named in the articles as directors, managers, or secretary of the company, that all the requirements of this act and rules made thereunder in respect of registrations and matters precedent or incidental thereto have been compiled with. 

(vii) Payment of Prescribed Fee: A filing fee has also to be deposited along with the aforesaid documents. 

If, having received the above documents and having scrutinised them, the Registrar is convinced that the necessary formalities required by law have been compiled with and the prescribed fee has been deposited, he will enter the name of the company in the Register of Companies maintained by him and issue a certificate of Incorporation under his signature testifying that the company has been officially incorporated and that it is a ‘limited’ public or private company. 

The Registrar of Companies issues (allocates) a Corporate Identity Number (CIN) to each registered company.

It must be stated that if the documents are in order and the object of the company is legal, the Registrar has no discretion in the matter and he must grant the certificate of incorporation.

If the documents produced before the Registrar are returned for rectifications of certain defects and the applicant instead of rectifying the defects, drops the matter, he cannot claim refund of fees paid for registration.

Meaning, characteristics, types of debentures.

Q. Write meaning and characteristics of Debenture. Explain different types of debentures.

Ans. MEANING OF DEBENTURE: The word ‘Debenture’ is derived from the latin word ‘debere’, which means ‘taking a loan’. When a company wants to take a loan on a long-term basis so that the loan becomes the company’s capital. It issues debentures and debenture stock. By debenture is meant a ‘document that contains an acknowledgement of indebtedness’. It is issued by company under its common seal and gives an undertaking to repay the debt at a specified date (or at the company’s option), specifies the conditions related to the loan taken by the company. According to Section 2(30) of the Companies Act, 2013, ‘debenture’ includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not. 

— According to Tophamn, “Debenture is a document given by a company as evidence of a debt to the holder usually arising out of loan, and most commonly secured by a charge.”

CHARACTERISTICS OF DEBENTURES: A debenture has the following characteristics:

(i) A debenture is issued by a company and is an acknowledgement of the company’s debt to the holder. 

(ii) It is issued under the company’s common seal, but need not necessarily specify the company’s capital.

(iii) A debenture is normally issued for a specified amount, but one debenture may also be issued for the total amount given by a debenture holder.

(iv) The rate of interest and the date of renewal is stated in a debenture.

(v) A debenture normally, but not always, is secured by the company’s property.

(vi) The holder of a debenture does not have a right to vote in the company’s meetings, i.e. he does not participate in the company’s management.

DIFFERENT TYPES OF DEBENTURES: Depending upon the conditions of issue, debentures may be of different types, which are as follows:

(1) Registered Debentures: Debentures that have the names, addresses and other particulars of the holder recorded in the company’s Register of Debenture-holders are called ‘registered debentures’. The interest as well as the principal amount with respect to such debentures is payable only to the registered holders. Registered debentures can be transferred only in accordance with the conditions of their issue and the transfer must necessarily be recorded in the company’s register. As such, a registered debenture is not a negotiable instrument.

(2) Bearer Debentures: Debentures that are neither recorded in the company’s register nor require the prior consent of the company for their transfer are called ‘bearer debentures’. In other words, bearer debentures are transferable by mere delivery and whoever has the possession of a bearer debenture is deemed to be its owner. Only the  holder of a bearer debenture has the right to receive the interest or the principal amount. The transfer of such debentures does not involve any legal procedure, and no stamp duty is to be paid for the transfer. The holder of bearer debentures can, on the payment of a normal fee, gets his name recorded in the company’s register of debenture-holder. 

(3) Secured Debentures: Debentures which are secured by a charge on the company’s property are called ‘secured’ or ‘mortgage’ debentures. In case the company does not make the payment of such debentures, the holders can realise the payment from the company’s property which is held in charge or mortgage.

(4) Unsecured Debentures: Debentures that are not secured by any charge or mortgage on the assets of the company are called unsecured debentures. The company does not provide any security for the payment of interest or principal amount of these debentures. The holders of such debentures are like ordinary, unsecured creditors of the company who only have a certificate that they have paid the amount of debentures to the company. In case of default on the company’s part, the holders of such debentures can sue the company. 

(5) Redeemable Debentures: When the holder of debentures is given the option that provides for the payment of the principal amount on a specified date or on demand or notice, the debentures are said to be redeemable.

(6) Irredeemable Debentures: Debentures on which the issuing company does not fix any date by which they should be redeemed, and the holders of debentures cannot demand payment from the company as long as it is a going concern are called ‘irredeemable’ or ‘perpetual’ debentures. Even though the principal amount of such debentures is paid on winding up of the company, the interest is paid regularly. In case, there is a default in the payment of interest, such debentures can be paid during the company’s lifetime.

(7) Convertible Debentures: When the holders of debentures are given the optìon that within a specified period and on fulfillment of specified conditions, they can convert either fully or partially, their debentures into equity shares, the debentures are said to be ‘convertible’.

“A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.” Explain this statement and discuss the basic features of the company.

 Q. “A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.”  Explain this statement and discuss the basic features of the company.

Ans. A company is an artificial person created by law. It has not any hand, leg, heart or physical body. Its existence comes when a company is formed and registered under company law. After coming in existence, it can do all business work like a human businessman. It can open its bank account. Company can buy or sell any asset on its own name. Company gets loan on its own name. It can sell own shares in the market. 

There will not any effect on the company whether any shareholder will come or go. Company will live if any shareholder sells his all shares. Other person who will buy the shares will become the new owner of the company. Company will not have any personal relation with shareholder. Every shareholder’s liability upto his bought shares.

It has also its own a common seal. This seal will use in all the agreements which will done on the name of company. Company cannot sign, so it is very necessary for making common seal which company can use as showing his identity on every agreement. All the documents will only legal if authorised person’s sign will be on the document and company’s seal will be on the same document.

FEATURES OF COMPANY: The main features of a company are as follows: 

(1) Incorporated Association: A company is established by law, and can exist till such time as it is recognised by law. Under companies Act, it is necessary for a company that is formed to be registered i.e., it needs to be incorporated.

(2) Artificial Person: Another important characteristic of a company is that it is an artificial person created by law. It is called an ‘artificial person’because its birth is not a natural birth. It is invisible, intangible and immortal artificial person that has an identity only in the eyes of law. It has no body, no soul and suffers no pain and enjoys no pleasure. Being an artificial person, it cannot take an oath, be imprisoned or personally appear in a court of law. It cannot get married or become a professional like a doctor or a lawyer. But it cannot be treated as a 'fictional person' or a 'fictitious entity' because it really does exist. Like a natural person, a company can buy and sell properties, make agreements or enter into contracts and employ people on its payroll. It can also be penalised if it does not abide by law. In other words, it can be said that a company, though lifeless, enjoys the privileges of a living person.

(3) Separate Legal Entity: The most important characteristic of a company is that it is a separate legal entity. As per-law, the company acquires a separate legal entity after it is incorporated which is distinct from the entity of its members. As a result, a company can enter into a contract with any of its members, buy property in its name, borrow or lend money, open a bank account or file a suit in a court of law against a third party. Likewise, others can also file a suit against the company. In other words, a company can do all such acts which a natural person would do in the course of his business. The case of Solomon Vs. Solomon & Co. is an illustration.

(4) Perpetual Succession: Perpetual succession is another important characteristic of a company. Its existence is not dependent on that of its shareholders or directors. The shareholders or the directors might change, but the company goes on. Death, insolvency or lunacy of its members has no effect whatsoever on the existence of the company. Members may come and members may go, but the company goes on forever. 

(5) Common Seal: A company is an artificial person and, as such, it cannot put its signature on documents. That is why it is mandatory under law that every company must have a common seal with its name engraved upon it. The common seal is the symbol of the company’s identity and is as good as a signature. When it puts its seal on a document, the company becomes bound by the contents of the document.

(6) Limited Liability: The liability of the shareholders of the company is limited. In case of financial loss to the company, howsoever heavy, the liability of the shareholders is limited to the amount unpaid on their shares, and their personal property cannot be used to pay the company debts.

(7) Number of members: The minimum number of members in a public company is seven and the maximum can be as much as the shares issued by the company. In other words, the maximum number of members in a public company is indefinite and is not specified. In a private company, the minimum number of members is two, and the maximum is two hundred, excluding members who are or were employees of the company.

(8) Representative Management: A company is deemed to be an artificial and imaginary person and, as such, it cannot manage its own affairs. A company, is administered and managed by representatives appointed by the shareholders. The shareholders are too many in number and scattered far and wide– which makes it impossible for the company affairs to be controlled by them. Besides, the objective of the shareholders is to make a profit– not to run the company’s business.

(9) Limitation of Action: A company is incorporated for the realisation of a specific objective or objectives. The objectives of the company are described in its prospectus and define the limitation of the companies activities. No company can cross this 'limitation of action' and engage itself in an activity which is not listed in its prospectus. If a company does that, its actions are not recognised by law and are deemed to be beyond the sphere of its authority. A company cannot, of its own will, start a new business or change its field of activity and do something which does not conform to its objectives.

(10) Transferability of Shares: The capital of a company is made up of shares of a definite value, and is contributed by its shareholders. According to Section 44 of the Companies Act, 2013, each shareholder can freely transfer his or her shares. But in some specific situations, the company may impose restrictions on the transfer of shares.

(11) Termination of Existence: Like it is born by an act of law, a company may also be terminated by law.

(12) Company is not a Citizen: A company is, without doubt, a legal ‘person’ or entity, but under Article 19 of the Indian Constitution, it is not a citizen. It has no 'fundamental rights like a citizen has. As such, a company cannot take the recourse of law to press for its fundamental rights like a citizen can. For example, a company does not have the right to franchise.

“A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal.” Explain this statement and discuss the basic features of the company.