Scenario: S.

1:

Entrepreneurship
1.2 Creation of a company
 Ch. 2 Different Types of Companies
1.Statutory 2. Registered Co. 3. Chartered
On the Company (Registered under Company (Formed
basis of (Under special Companies Act, under Special
Statue Act of Parliament 2013 or Previous Charter of
of India) Companies Act in Parliament of U.K.)
India)

On the
basis of 1.Private Company 2.Public Company 3.One Person Co.
Registratio (Sec. 2(68) (Sec. 2(71) (Sec. 2(62)
n

On the
basis of 1.Company Limited 2.Company Limited 3. Unlimited Liability
Liability by Shares by Guarantee Company

Having Share Capital Not Having Share

Capital
Other
Types of Govt. Co. Foreign Co. Holding Co. Subsidiary
Companies Co.

Associate Co. Investment Producer Co. Dormant Co.

Co.

Classification of Companies

On the basis of Statue: There are three ways in which companies may be incorporated.
1. Chartered Companies 2. Statutory Companies and 3. Registered Companies

Chartered A company created by the grant of a charter by the Crown is called a Chartered
Company Company and is regulated by that Charter.

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Statutory A company formed by passing a Special Act in the Parliament is called a Statutory
Companies Company or Statutory Corporation

Registered Those companies which are incorporated under the Companies Act, 2013 or under
Companies any previous company law.

STATUTORY COMPANIES / CORPORATIONS

A Company formed under a Special Act of Parliament or State Legislature is called a Statutory
Company/ Corporation.
The special enactment contains its constitution, powers and scope of its activities.
Change in its structure is possible only by a legislative amendment.
Such companies are usually formed to carry on the work of some special public importance and for
which the undertaking requires extraordinary powers, and privileges.
A major objective for incorporating statutory corporations is to serve public interest.
Such companies do not use the word “limited” as part of their names, e.g., Reserve Bank of India,
LIC, ONGC, ICSI, ICAI, etc.

Characteristics of Statutory Companies / Corporations

(i) Owned: It is owned by the State

(ii) Special Law: It is created by a special law of Parliament or State Legislature.
(iii) Immunity from Parliamentary Scrutiny: A statutory corporation is immune from
Parliamentary enquiry into its day-to-day working, as distinct from matters of policy.
(iv) Freedom in regard to personnel: Excluding the officers taken from the Government
department on deputation, its employees are not civil servants and are not governed by
Government regulations in respect of conditions of service.
(v) A body corporate: Each statutory corporation is a body corporate and can sue and be sued,
enter into contracts and acquire property in its own name.
(vi) Distinct relation with the Government: The most important provision which regulate the
relationship of public corporation and Government is the latter’s power to issue directions.
(vii) Commercial Audit: Except in the case of the banks, the financial institutions and the LIC,
where chartered accountants are auditors, in all the other corporations, the audit has been
entrusted to the Comptroller and Auditor General of India (CAG).

REGISTERED COMPANIES

The Companies Act, 2013 provides different kinds of companies that can be promoted and
registered under the Act.

According to Section 3 (1) of the Companies Act 2013, a company may be formed for any lawful
purpose as:
(a) Private Companies;
(b) Public Companies; and
(c) One Person Company (to be formed as Private Limited).

A company formed under sub-section (1) may be either—

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(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) an unlimited company.

On the basis of Liability: Under this category there are three types of companies:

Company A company limited by shares may be defined as a “registered company” whether

Limited by public or private company, having the liability of its members limited by its shares,
Shares if any, unpaid on the shares respectively held by them. In other words, a member of
a company limited by shares is required to pay only the nominal amount of shares
held by him and nothing more. If the shares are fully paid-up, he has nothing more to
pay.

Company A company limited by guarantee is a registered company having the liability of its
Limited by members limited by its memorandum to such an amount as the members may
Guarantee respectively undertake by the memorandum to contribute to the assets of the
company in the event of its being wound up.

An An unlimited company is a company not having any limit on the liability of its
Unlimited members. Thus, the maximum liability of the members of such a company, in the
Liability event of its being wound up, might stretch up to the full extent of their properties to
Company meet the obligations of the company by contributing to its assets. However, the
members of an unlimited company are not liable directly to the creditors of the
company, as in the case of partners of a firm. The liability of the members is only
towards the company and in the event of its being wound up only the liquidator can
ask the members to contribute to the assets of the company which will be used in
discharging the debts of the company.
A company registered as an unlimited company may subsequently convert itself as a
limited company.

The name of an unlimited company is written as

“XYZ (A Company with Unlimited Liability)”.
The promoters of an unlimited liability company incorporate these companies for number of
reasons, such as,
Availing bank loans with ease,
Availing credits without mortgage on the property of the company.

An unlimited liability company can be converted into a company with limited liability.

Other Forms of Companies

(a) Associations not for profit having license under Section 8 of the Companies Act, 2013 or under
any previous company law;
(b) Government Companies;
(c) Foreign Companies;

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(d) Holding and Subsidiary Companies;
(e) Associate Companies/Joint Venture Companies
(f) Investment Companies
(g) Producer Companies.
(h) Dormant Companies

Private According to Section 2(68) of Companies Act, 2013 “private company” means a
Company company which by its articles, –
[Section (i) restricts the right to transfer its shares;
2(68)] (ii) except in case of One Person Company, limits the number of its members to
two hundred:

Provided that where two or more persons hold one or more shares in a company
jointly, they shall, for the purposes of this clause, be treated as a single member.

Provided further that –

(A) Persons who are in the employment of the company; and
(B) Persons who, having been formerly in the employment of the company,
were members of the company while in that employment and have continued
to be members after the employment ceased,

Shall not be included in the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the
company;

According to Sec 2(81), the term Securities means the securities as defined in
Securities Contracts (Regulation) Act, 1956.

The Companies Act, 2013 prohibits a private company from inviting the public to
subscribe for ALL TYPES OF SECURITIES, as opposed to the prohibition in the
Companies Act, 1956, being only on shares and debentures.

A private company can be registered with a minimum of 2 members and cannot have
more than 200 members.

Section 149(1) lays down that a private company shall have a minimum number of
two directors. The only two members may also be the two directors of the private
company.

The words “Private Limited” must be added at the end of its name by a private
limited company.

As per proviso to Section 14 (1), if a company being a private company alters its
articles in such a manner that they no longer include the restrictions and limitations
which are required to be included in the articles of a private company under this Act,
such company shall, as from the date of such alteration, cease to be a private
company. In such a case, it shall be treated as a public company from the date of
alteration of its articles.

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 A private company can only accept deposit from its members in accordance with
section 73 of the Companies Act, 2013.
The express prohibition on invitation/ acceptance of deposits except from directors
or their relatives or from members as was given under the section 3(1)(iii)(d) of
Companies Act, 1956, is omitted under the Companies Act, 2013.

Public “Public company” means a company which is not a private company.

Company
[Section As per section 3 (1) (a), a public company may be formed for any lawful purpose by
2(71)] seven or more persons, by subscribing their names to a memorandum and complying
with the requirements of this Act in respect of registration.

Privileges and Exemptions of Private Company

The Companies Act, 2013, confers certain privileges on private companies which are not
subsidiaries of public companies. Such companies are also exempted from complying with quite a
few provisions of the Act.

Some privileges and exemptions enjoyed by a private company are as:

Sec. 67(2) Financial assistance can be given to its employees for purchase of or subscribing to
its own shares or shares in its holding company.

Sec. 121(1) Need not prepare a report on the Annual General Meeting.

Sec. Need not prepare a statement indicating the manner in which formal annual
134(3)(p) evaluation has been made by the Board of its own performance and that of its
committees and individual directors.

Sec. 149(4) Need not appoint Independent directors on its Board.

Sec. 152(6) A proportion of directors need not retire every year.

Sec. 190(4) The provisions relating to contract of employment with managing or whole-time
directors does not apply to a private company.

Sec. 197(1) Total managerial remuneration payable by a private company, to its directors,
including managing director and whole-time director, and its manager in respect of
any financial year may exceed eleven per cent of the net profits.

According to Sec. 462 (1), the Central Government may in public interest, by notification, direct
that any of the provisions of this Act, shall not apply to such class or classes of companies or shall
apply to the class or classes of companies with such exceptions, modifications and adaptations as
may be specified in the notification.

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Distinction between a Public and a Private Company

Minimum The minimum number of persons required to form a public company is 7. It is 2

number in case of a private company.

Maximum There is no restriction on maximum number of members in a public company,

number whereas the maximum number cannot exceed 200 in a private company.

Number of A public company must have at least 3 directors, whereas a private company
directors must have at least 2 directors.

Restriction on A public company invites the general public to subscribe for the shares in, or the
invitation to debentures of the company. A private company by its Articles prohibits any such
subscribe for invitation to the public.
shares
Transferability In a public company, the shares are freely transferable. In a private company the
of shares right to transfer shares is restricted by the Articles.

Privileges A private company enjoys some special privileges. A public company enjoys no
such privileges.

One Person Company (OPC)

Meaning As per section 2(62) of the Companies Act, 2013, “One Person Company” means a
company which has only one person as a member.
In other words, one-person company is a kind of private company.

One-person company shall have a minimum of one director. Therefore, a One

Person Company will be registered as a private company with one member and one
director.

Formation According to section 3(2), an OPC may be formed either as a company limited by
shares or a company limited by guarantee; or an unlimited liability company.

The memorandum of One Person Company is required to indicate the name of the
other person, (i.e., nominee) with his prior written consent in the prescribed form,
(Form No. INC 3- Rule 4(2), who shall, in the event of the subscriber’s death or his
incapacity to contract become the member of the company and the written consent
of such person shall be filed with the Registrar at the time of incorporation of the
One Person Company along with its memorandum and articles.

As per Rule 4(1), the subscriber to the MOA of OPC shall nominate a person after
obtaining prior consent of such person who shall, in the event of the subscriber’s
death or incapacity to contract, become the member of that OPC.

As per Rule 4(2), the member shall make nomination in Form No. INC 2.

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 As per Rule 4(3), the nominee may, withdraw his consent be giving a notice in
writing to such (i) Sole member and to (ii) the One Person Company.

Thereafter, the sole member shall nominate another person as nominee within 15
days of the receipt of the notice of withdrawal of consent, and shall send an
intimation of such nomination in writing to the company, along with the written
consent of such other person so nominated in Form No. INC. 3.

As per Rule 4(4), thereafter, the co. shall within 30 days of receipt of the notice of
withdrawal of consent from the nominee under Rule 4(3) file with the ROC, a notice
of such withdrawal of consent and intimation of the name of another person
nominated by the sole member in Form No. INC. 4 along with fee as provided in
the Companies (Registration Offices and Fees) Rules, 2014, and the written consent
of such another person so nominated in Form No. INC 3.

As per Rule 4 (5), the sole member of OPC may, by intimation in writing to
company, change the name of nominee at any time for any reason (including death
or incapacity to contract of nominee), and nominate another person after obtaining
the prior consent of such other person in Form No. INC. 3.

Summary of Usage of Different Forms

Form No. INC 2 - Application of Incorporation of OPC (The name of Nominee is
given in Column 8).
Form No. INC 3 – Nominee (or new nominee) gives his consent.
Form No. INC 4 – Company gives intimation about nominee (or new nominee) to
ROC.

Other conditions for One Person Company are as under:

Rule 3 -OPC
As per Rule 3(1) (a), only a person who fulfils all the following three criteria can incorporate OPC-
(1) Only a natural person (2) who is an Indian citizen and (3) resident in India.

As per Rule 3(1) (b), only a person who fulfils all the three criteria shall be a nominee for the sole
member of OPC-
(1) Only a natural person (2) who is an Indian citizen and (3) resident in India.

It may be noted that “resident in India” means a person who has stayed in India for a period of not
less than one hundred and eighty-two days during the immediately preceding one calendar year.

(2) No person shall be eligible to incorporate more than a One Person Company or become
nominee in more than one such company. [Rule3 (2)]

If a natural person, being a member in OPC in accordance with this rule becomes a member in
another OPC by virtue of his being a nominee in that OPC, such person shall meet the eligibility
criteria specified in Rule 3(2) with in a period of 180 days [Rule3 (3)].

Four Restrictions on OPC

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(3) No minor shall become member or nominee of the One Person Company. [Rule3 (4)]

(4) Such Company cannot be incorporated or converted into a company under section 8 of
Companies Act, 2013(section 8 deals with Formation of company with charitable objects, etc.)
[Rule3 (5)]

(5) Such Company cannot carry out Non-Banking Financial Investment activities including
investment in securities of anybody corporates. [Rule3 (6)]

(6) No such company can convert voluntarily into any kind of company unless two years have
expired from the date of incorporation of One Person Company, except threshold limit (paid up
share capital) is increased beyond fifty lakh rupees or its average annual turnover during the
relevant period exceeds two crore rupees. [Rule3 (7)]

Rule 5 – Penalty

IF OPC or any officer of OPC contravenes of these rules, then OPC or any officer of the OPC shall
be punishable with fine which may extend to Rs. 10,000 and a further fine which may extend to Rs.
1000 for every day after the first default during which such contravention continues.

Contract by One Person Company

Section 193 (1) provides that where One Person Company limited by shares or by guarantee enters
into a contract with the sole member of the company who is also the director of the company, the
company shall, unless the contract is in writing, ensure that the terms of the contract are recorded in
the minutes of the first meeting of the Board of Directors of the company held next after entering
into contract.

However, above said provision shall not apply to contracts entered into by the one-person company
in the ordinary course of its business.

As per section 193 (2), the company shall inform the Registrar about every contract entered into by
the company and recorded in the minutes of the meeting of its Board of Directors under sub-section
(1) within a period of fifteen days of the date of approval by the Board of Directors.

As per section 152 (1), in case of a One Person Company an individual being its member shall be
deemed to be its first director until a director or directors are duly appointed by the member.

Privileges of a One Person Company

The privileges and exemptions enjoyed by a one-person company are as follows:

Sec. 67(2) Financial assistance can be taken by the member from the OPC for purchase of its
own shares.
Sec. 92(1) The annual return shall be signed by the company secretary, or where there is no
company secretary, by the director of the company.
In other words, it need not be signed by a company secretary in practice.
Sec. 96(1) Need not hold Annual General Meeting.

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Sec. Need not prepare a report on Annual General Meeting.
121(1)
Sec. Financial statement and Board’s report can be signed only by one director.
134(1)
Sec. Need not prepare a statement indicating the manner in which formal annual evaluation
134(3)(p) has been made by the Board of its own performance and that of its committees and
individual directors.

Sec. One-person company need not to have more than one director on its Board.
149(1)
Sec. Need not to appoint Independent directors on its Board.
149(4)
Sec. Retirement by rotation is not applicable.
152(6)
According to Sec. 462 (1), the Central Government may in public interest, by notification, direct
that any of the provisions of this Act, shall not apply to such class of companies; or shall apply to
the class of companies with such exceptions, modifications and adaptations as may be specified in
the notification.

Classification on the basis of Ownership

Govt. Companies Non-Govt. Companies

Companies owned by C. Companies owned by

Govt. or S. Govt. or partly private entrepreneurs.
by C. Govt. & partly by S.
Govt.
These companies are also These companies are
known Public Sector known as Private Sector
Undertakings (PSU). Companies.

Private Co. Public Co. Private Co. Public Co.

Sec. 2(68) Sec. 2(71) Sec. 2(68) Sec. 2(71)

Example Example Example Example

Delhi SAIL Sony India TCS Ltd.
Internationa GAIL (Pvt.) Ltd. ACC Ltd.
l Airport MTNL Vodafone Reliance
authority BSNL India (Pvt.) Industries
(Pvt.) Ltd. Ltd. Ltd.

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Government Companies

Govt. Co.

and
Means Includes
A company in which 51% or more A company which is subsidiary of a
paid up share capital is held either by Govt. Company,
1. C. Govt., or (i.e., more than 50% of total paid up
2. S. Govt., or share capital)
3. Partly by C. Govt. & S. Govt.

Section 2(45) of the Companies Act, 2013 defines “Government Company” as any company in
which not less than fifty-one per cent of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly by the Central Government and
partly by one or more State Governments and includes a company which is a subsidiary company of
such a Government company.

All the provisions of the Act are applicable to Government Companies unless otherwise specified.
A Government Company may be formed as a Private Limited Company or Public Limited Company.
The name of all Government Companies shall end with the word “Limited”, be it Public or a Private
Company.”
Name: In case of Government Company, the word “STATE” is allowed in name.

AUDIT REPORT

Where the Central Government is a member of a Government company, the Central Government
shall cause an annual report on the working and affairs of that company to be prepared within three
months of its annual general meeting, and laid before both Houses of Parliament together with a
copy of the audit report and comments upon or supplement to the audit report, made by the
Comptroller and Auditor-General of India.

Where in addition to the Central Government, any State Government is also a member of a
Government company, that State Government shall cause a copy of the annual report prepared
within three months of its annual general meeting and laid before the House or both Houses of the
State Legislature together with a copy of the audit report and the comments upon or supplement to
the audit report, made by the Comptroller and Auditor- General of India.

Where the Central Government is not a member of a Government company, every State
Government which is a member of that company, or where only one State Government is a member
of the company, that State Government shall cause an annual report on the working and affairs of
the company to be prepared and as soon as may be after such preparation, laid before the House or
both Houses of the State Legislature together with a copy of the audit report and comments upon or
supplement to the audit report made by the Comptroller and Auditor-General of India.

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Important Cases relating to Govt. Company

Hindustan Steel Notwithstanding all the pervasive control of the Government, the Government
Works company is neither a Government department nor a Government
Construction Co. establishment.
Ltd. vs.
State of Kerala
A.K. Bindal v. Since employees of Government companies are not Government servants,
Union of India they have no legal right to claim that the Government should pay their salary
or that the additional expenditure incurred on account of revision of their pay
scales should be met by the Government. It is the responsibility of the
company to pay them the salaries.

Andhra Pradesh The Andhra Pradesh State Road Transport Corporation claimed exemption
Road Transport from taxation by invoking Articles 289 of the Constitution of India according
Corporation vs. to which the property and income of the State are exempted from the Union
ITO taxation.
The Supreme Court, while rejecting the Corporation’s claim, held that though
it was wholly controlled by the State Government, it had a separate entity and
its income was not the income of the State Government.

NOTE: The employees of a Government Company are not the employees of the Central or State
Government.
A Government Company may, in fact, be wound up like any other company registered under the
Companies Act.
It may become insolvent or be unable to pay its debts. That does not mean that the Government
holding the shares, i.e., Central or State, as the case may be, has become bankrupt.

Company with charitable objects or an Association not for Profit (Sec 8)

As per Section 4(1), the memorandum of a company shall state the name of the company with the
last word “Limited” in the case of a public limited company, or the last words “Private Limited” in
the case of a private limited company.
However, Section 8(1) permits the registration, under a licence granted by the Central Government,
of associations not for profit with limited liability without being required to use the word “Limited’
or the words ‘Private Limited” after their names.
Section 8 of the Companies Act, 2013 provides that where it is proved to the satisfaction of the
Central Government that a person or an association of persons proposed to be registered as a limited
company –

(a) has in its objects the promotion of art, science, sports, education, research, social welfare,
religion, charity, protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members.

Main Provisions

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(1) The Central Government may by issuing licence, on such conditions as it deems fit, allow that
person or association of persons to be registered as a limited company without the addition to its
name of the word “Limited”, or as the case may be, the words “Private Limited”, and thereupon the
Registrar shall, on application, in the prescribed form, register such person or association of persons
as a company under this section.

[In this case, it is necessary for a company to obtain a licence from C. Govt. (ROC). For this
purpose, powers are delegated to ROC. Application in Form INC.12 and Rule 19 of Companies
(Incorporation) Rules, 2014 apply.]

(2) The company registered under section 8 shall enjoy all the privileges and be subject to all the
obligations of limited companies.

(3) A partnership firm may be a member of the company registered under this section.

(4) A company registered under Section 8 shall not alter the provisions of its memorandum or
articles except with the previous approval of the Central Government.

(5) A company registered under Section 8 may convert itself into company of any other kind only
after complying with such prescribed conditions.

(6) The Central Government may, by order, revoke the licence granted to a company registered
under this section if --
the company contravenes any of the requirements or any of the conditions subject to which a licence
is issued or
the affairs of the company are conducted fraudulently or in a manner violative of the objects of the
company or prejudicial to public interest,
--direct the company to convert its status and change its name to add the word “Limited” or the
words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall register
the company accordingly.

(7) Where a licence is revoked, the Central Government may, by order, if it is satisfied that it is
essential in the public interest, direct that the company be wound up under this Act or amalgamated
with another company registered under this section.
Example- FICCI

Small Company

Small company is a new form of private company under the Companies Act, 2013. A classification
of a private company into a small company is based on its size i.e. paid up capital and turnover.
In other words, such companies are small sized private companies.
As per section 2(85) ‘‘small company’’ means a company, other than a public company, –
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may
be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or
such higher amount as may be prescribed which shall not be more than twenty crore rupees.

Provided that nothing in this clause shall apply to

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 (A) A Holding Company or a Subsidiary Company;

(B) A company registered under section 8; or

(C) A company formed under any special Act.

MCA amends definition of Small Company [Section 2(85)]

However, there were difficulties faced to ascertain whether a company is a Small Company based
on the paid share capital or turnover as per last profit and loss account. MCA has listed some of the
challenges as follows:

If the company breaches any one criterion for Small Company, it will not be eligible for the benefits
of Small Company, for ex: a company that has a paid up capital Rs. 25 lacs and the turnover for a
particular year is Rs 2.5 crores will not be classified as Small Company. The status of a company as
a Small Company may change from year to year.

Holding Company and Subsidiary Company being exempted from the definition of Small Company
will never be able to avail the special privileges of a Small Company even if they fulfill either
(1) paid up share capital or (2) turnover requirement of a Small Company.

In order to overcome these difficulties, MCA passed an order Companies (Removal of Difficulties)
Order, 2015 on 13th Feb, 2015 to amend the definition of ‘Small Company’ as a company (other
than Public Company) whose paid up capital does not exceed Rs. 50 lacs and turnover as per last
profit and loss account does not exceed Rs. 2 crores.

With the change in the definition of Small Company, some of the companies who were falling under
Small Company category will now move to non-small company category. As a result, the
exemptions which were provided to these companies will not be applicable as mentioned below:

• 1. Cash-flow Statement: - The company which does not fall under Small Company category as
per amended definition will have to prepare the cash flow statement as a part of their financial
statement.

• 2. Filing Annual Return: - The company which does not fall under Small Company category as
per amended definition or which is not a One Person Company (OPC has one shareholder), will
have to get their annual returns signed both by the Director and the Company Secretary.
• In the case of Small Company, One Person Company or Unlisted Company, either the Company
Secretary or the Director can sign the Annual Returns.

• 3. Rotation of Auditor: - . The company which does not fall under Small Company category as
per amended definition will have to ensure the mandatory rotation of auditor, which is 5 years in
the case of individual auditor and 10 years in the case of a firm of auditors. This is exempted for
Small Company as per amended definition.

• 4. Board meeting: -The company which does not fall under Small Company category is
required to hold at least 4 meetings every year and the gap between two consecutive meetings
should not be more than 120 days. Small Company, One Person Company or Dormant Company

33
may hold only two board meetings in a year, i.e. half-yearly board meetings with a minimum
gap of 90 days between two meetings.

As mentioned earlier, a company which is categorized as Small Company may move to non-small
company category through its life term. In case a particular company does not meet the requirement
as mentioned above, for one year, the benefits and exemptions will be withdrawn from the
subsequent year.

Unincorporated Company
According to Sec. 582 of Companies Act, 1956, a partnership firm having 8 or more partners (but
within the limit of 50) shall be deemed / considered as an unincorporated company, and the partners
of such firm have two options at the time of dissolution:

1. Either to dissolve the firm themselves under the Partnership Act, 1932, or
2. To file an application to the Court for the winding up by the liquidator.

Distinction between Unlimited Liability Co. and Unincorporated Co.

Basis Unlimited Liability Co. Unincorporated Co.

Registered Unlimited liability company is registered It is not registered under the

under Companies Act. 2013. Companies Act, 2013
Certificate of It has a Certificate of Incorporation. It does not have a Certificate of
Incorporation Incorporation.
No. of It has minimum 2 members and maximum It is a partnership firm having
Members/ 200 members, in case of Private company; minimum 8 members and maximum
Partners and in case of Public company, it has 50 partners.
minimum of 7 persons and there is no
maximum limit.
Governed It is governed by the provisions of It is governed by the provisions of
Companies Act, 2013. Partnership Act, 1932.
Liability of Liability of members is unlimited. Liability of partners is unlimited.

Foreign Companies
As per section 2(42) of the Companies Act, 2013 “foreign company” means any company or body
corporate incorporated outside India which –
(a) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
(b) conducts any business activity in India.

Rule 2(1)(b) Companies Specification of Definition Details) Rules, 2014

Electronic Mode

34
Electronic Mode for the purpose of Section (2(42) of the Act, means carrying out any electronically
based activities, whether main server is installed in India or not, including activities given below;

(i) Business to Business (B2B) and Business to Consumer (B2C) transactions, data
interchange and other digital supply transactions;
(ii) Offering to accept deposits or inviting deposits or accepting deposits OR subscription in
securities in India OR from Citizen of India;
(iii) Financial Settlements, Web based marketing, Advisory and Transactional Services,
Database Services and Products, Supply Chain Management;
(iv) Online services such as telemarketing, telecommuting, telemedicine, educational and
information research; and
(v) All related data communication services, whether conducted by e-mail, mobile devices,
social media, cloud computing, document management, voice or data transmission or
otherwise.
NOTE: According to Rule 2(1)(h), the list of activities given above is inclusive.

Document etc. to be filed with ROC by Foreign Companies

Section 380 of the Act lays down that

(1) Every foreign company which establishes a place of business in India must, within 30 days
of the establishment of such place of business, file with the Registrar of Companies for
registration:
(a) a certified copy of the memorandum and articles, of the company or other instrument
constituting or defining the constitution of the company and, if the instrument is not in the
English language, a certified translation thereof in the English language;
(b) the full address of the registered or principal office of the company;
(c) a list of the directors and secretary of the company containing such particulars as may
be prescribed;
(d) the name and address or the names and addresses of one or more persons resident in
India authorised to accept on behalf of the company service of process and any notices or
other documents required to be served on the company;
(e) the full address of the office of the company in India which is deemed to be its
principal place of business in India;
(f) particulars of opening and closing of a place of business in India on earlier occasion or
occasions;
(g) declaration that none of the directors of the company or the authorized representative
in India has ever been convicted or debarred from formation of companies and
management in India or abroad; and
(h) any other information as may be prescribed.

(2) Every Foreign company existing at the commencement of this Act shall, if it has not
delivered to the ROC before the commencement, the document and particulars specified in
sub section (1) of Section 592 of the Companies Act, 1956, continue to be subject to the
obligation to deliver those documents.

(3) Where any alteration is made or occurs in the document delivered to the ROC under this
section, the foreign company shall, within 30 days of such alteration, deliver to the ROC for
registration, a return containing the particulars of the alteration in the prescribed form.

35
Section 381 requires a Foreign Company to maintain Books of Account and file a copy of balance
sheet and profit and loss account in prescribed form with ROC every calendar year.
Every foreign company has to ensure that the name of the company, the country of incorporation,
the fact of limited liability of members is exhibited in the specified places or documents as required
under Section 382.

Section 376 of the Companies Act, 2013 provides further that when a foreign company, which has
been carrying on business in India, ceases to carry on such business in India, it may be wound up as
an unregistered company under Sections 375 to 378 of the Act, even though the company has been
dissolved or ceased to exist under the laws of the country in which it was incorporated.

As per Section 386(c), having a share transfer office or share registration office will constitute a
place of business.

A representative of a foreign company in India was merely receiving orders from customers, it was
held that it was not a “place of business” P.J. Johnson v. Astrofiel Armadorn

The following activities are held as not constituting “carrying on of business”:

(1) carrying small transactions
(2) conducting meetings of shareholders or even directors
(3) operating bank accounts
(4) transferring of shares or other securities
(5) procuring orders
Where not less than fifty per cent of the paid-up share capital, whether equity or preference or partly
equity and partly preference, of a foreign company is held by one or more citizens of India or by one
or more companies or bodies corporate incorporated in India, or by one or more citizens of India and
one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate,
such company shall comply with the provisions of this Act as may be prescribed by the Central
Government with regard to the business carried on by it in India, as if it were a company
incorporated in India.

On the basis of control, companies can be classified into holding, subsidiary and associate
companies.
Holding company

As per Section 2(46) of the Companies Act, 2013, holding company, in relation to one or more
other companies, means a company of which such companies are subsidiary companies.

Subsidiary company

Section 2(87) of the Companies Act, 2013 provides that subsidiary company means a company in
which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together
with one of more of its subsidiary companies.

Meaning of Control: According to section 2 (27), control shall include the right to appoint
majority of the directors or to control the management or policy decisions exercisable by a person
or persons by virtue of their shareholding or management rights or shareholder’s agreements.

36
Meaning of Total Share Capital
As per 2(1)(r) “total Share Capital”, means aggregate of the: -
(a) paid-up equity share capital and
(b) convertible preference share capital.

There are 3 ways to determine the relationship of holding and subsidiary company.

1. If H Ltd. controls, the composition of BoDs of S Ltd.

2. If H Ltd. holds more than 50% of the Total Share Capital of S Ltd.
3. Chain Holding – If H Ltd is holding of S Ltd. And S Ltd. is holding of XYZ Ltd. then H
Ltd. is holding of XYZ Ltd also.

Note: C. Govt. may prescribe in the rules the maximum number of layers of Subsidiary
Companies that a particular class of holding Company may have.

MCA Circular dated 27th Dec, 2013 has clarified the shares held by a company (i.e. Holding Co.)
or power exercisable by it in another company (i.e., Subsidiary Co.) in “fiduciary capacity” shall
not be counted for the purpose of determining the holding subsidiary relationship in terms of
provisions of section 2(87) of the Companies act, 2013.

Subsidiary company not to hold shares in its holding company [Section 19]

Section 19 (1) provides that subsidiary company shall not either by itself or through its nominees
hold shares in its holding company and no holding company shall allot or transfer its shares to any
of its subsidiary companies and any such allotment or transfer of shares of a company to its
subsidiary company shall be void.

Following are the circumstances, where a subsidiary can hold the shares of its holding company:
(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of
the holding company:
However, the subsidiary company referred above shall have a right to vote at a meeting of the
holding company only in respect of the shares held by it as a legal representative or as a trustee, as
referred to in item (a) or (b) aforesaid.

Associate Company

As per Section 2(6), “Associate company”, in relation to another company, means a company in
which that other company has a significant influence, but which is not a subsidiary company of the
company having such influence and includes a joint venture company.

Explanation to section 2(6) provides that “significant influence” means control of at least twenty
percent of total share capital, or of business decisions under an agreement.

Example: A Ltd. is an associate company of B Ltd. If:

(i) - B Ltd. has significant influence in A Ltd. and - B Ltd. is not a holding company of A Ltd.
37
or
(ii) A Ltd and B Ltd. are joint venture companies.

Investment Companies

As per explanation (a) to section 186, “investment company” means a company whose principal
business is the acquisition of shares, debentures or other securities.
An investment company is a company, the principal business of which consists in acquiring,
holding and dealing in shares and securities.
The word ‘investment’, no doubt, suggests only the acquisition and holding of shares and securities
and thereby earning income by way of interest or dividend etc.
But investment companies in actual practice earn their income not only through the acquisition and
holding but also by dealing in shares and securities i.e. to buy with a view to sell later on at higher
prices and to sell with a view to buy later on at lower prices.

Producer Company

Producer Companies are still governed by the Companies Act, 1956.

According to Section 581A(l) of the Companies Act, 1956,

"Producer Company" means a body corporate having objects or activities specified in section 581B
and registered as Producer Company under this Act;

The membership of producer companies is open to such people who themselves are the primary
producers, which is an activity by which some agricultural produce is produced by such primary
producers.

The concept of Producer Company in India was introduced to allow cooperatives to function as a
corporate entity under the Ministry of Corporate Affairs.

Objects of Producer Company (Section 581B (1) of the Companies Act, 1956)

(1) The objects of the Producer Company shall relate to all or any of the following matters, namely:
(a) production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of
primary produce of the Members or import of goods or services for their benefit
(b) processing including preserving, drying, distilling, brewing, and packaging of produce of its
Members;
(c) manufacture, sale or supply of machinery, equipment or consumables mainly to its Members;
(d) providing education on the mutual assistance principles to its Members and others;
(e) rendering technical services, consultancy services, training, research and development and all
other activities for the promotion of the interests of its Members;
(f) generation, transmission and distribution of power, revitalisation of land and water resources,
their use, conservation and communications relatable to primary produce;
(g) insurance of producers or their primary produce;
(h) promoting techniques of mutuality and mutual assistance;
(i) welfare measures or facilities for the benefit of Members as may be decided by the Board;
(j) any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i)
(k) financing of procurement, processing, marketing or other activities specified in clauses (a) to (j)
which include extending of credit facilities or any other financial services to its Members.

38
Section 581 B (2) Every Producer Company shall deal primarily with the produce of its active
Members for carrying out any of its objects specified in this section.

Formation of Producer Company and its registration.

Any ten or more individuals, each of them being a producer or any two or more producer
institutions, or a combination of ten or more individuals and producer institutions, desirous of
forming a Producer Company having its objects specified in section 581B and complying with the
provisions of this Act in respect of registration, may form an incorporated Company as a Producer
Company under this Act.

DORMANT COMPANIES

The Companies Act, 2013 has recognized a new set of companies called as dormant companies.

As per section 455 (1) where a company is formed and registered under this Act for a future project
or to hold an asset or intellectual property and has no significant accounting transaction, such a
company or an inactive company may make an application to the Registrar in such manner as may
be prescribed for obtaining the status of a dormant company.

Explanation appended to section 455(1) says that for the purposes of this section—
(i) “inactive company” means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during the last two financial
years, or has not filed financial statements and annual returns during the last two financial years;

(ii) “significant accounting transaction” means any transaction other than—

(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.

As per section 455(2), the Registrar on consideration of the application shall allow the status of a
dormant company to the applicant and issue a certificate in such form as may be prescribed to that
effect.

Section 455(3) provides that the Registrar shall maintain a register of dormant companies in such
form as may be prescribed.

According to section 455(4), in case of a company which has not filed financial statements or
annual returns for two financial years consecutively, the Registrar shall issue a notice to that
company and enter the name of such company in the register maintained for dormant companies.

Further a dormant company shall have such minimum number of directors, file such documents and
pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register
and may become an active company on an application made in this behalf accompanied by such
documents and fee as may be prescribed. [Section 455(5)]

PUBLIC FINANCIAL INSTITUTIONS

39
According to Section 2 (72), “Public financial institution” means—
(i) the Life Insurance Corporation of India,
(ii) the Infrastructure Development Finance Company Limited,
(iii) Unit Trust of India;
(iv) institutions notified by the Central Government;
(v) such other institution as may be notified by the Central Government in consultation with the
Reserve Bank of India:
However, no institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central
Government or by any State Government or Governments or partly by the Central Government and
partly by one or more State Governments.

Unregistered Companies [Section 375]

Section 375 of the Companies Act, 2013 defines an unregistered company to include:
Any Partnership Firm,
Limited Liability Partnership,
Society,
Cooperative Society,
Association, or
Company consisting of more than seven members.

Pre-emptive Right of Existing Shareholders

According to Sec. 2(68) (i), the Articles of Association of all private companies provide that – if a
particular shareholder of such company wants to sell off his shares, then he shall, first of all, offer
his shares to all the remaining existing shareholders of such company and wait for such period of
time as may be mentioned in AOA and if all the existing shareholders refuse to purchase his shares
(or do not respond back in given time period, then only the concerned shareholder shall offer his
shares to an outsider, i.e., who is not a shareholder of such company. This right of first refusal of
existing shareholders is also called as Pre-emptive Right of Existing Shareholders.

40
Conversion of Private Company Into a Public Company & Vice
Versa
Section 14 (1) states a company may, by a special resolution and by altering its articles, may
convert from
(a) a private company into a public company; or
(b) a public company into a private company:

Conversion of Private Ltd. Co. into Public Ltd. Co.

According to Section 14, the following steps shall be necessary for conversion of a private
company into a public company.

Alteration When a private company alters its articles in such a manner that they no longer
of Articles include any of the restrictions and limitations which are required to be included
in the articles of a private company under section 2(68), the company shall, as
from the date of such alteration, cease to be a private company.
So, where AOA of a private company are amended to raise its membership
beyond 200, or permitting free transferability of shares, or to extend invitation to
public to subscribe to its shares or debentures, it becomes a public company,
with effect from the date of such alteration.

Special According to Section 14, a private company can amend its AOA for the purpose
Resolution by passing a Special Resolution.

Increase in If the number of members is less than seven, it must increase to not less than
Membership seven.

Increase in If the number of directors is less than three, it must increase to not less than
no. of three.
directors
Filing of Every alteration of the articles under this section shall be filed with the Registrar
Altered in Form No. INC 27, together with printed copy of altered articles within period
Articles of 15 days.

Privileges It also ceases to have the privileges and exemptions conferred on it by the Act as
cease a private company.

All It becomes a public company and all the provisions of the Act applicable to such
provisions companies become applicable to it.
of public co.
apply

Conversion of Public Ltd. Co. into Private Co.

For conversion of a public company into a private company, Section 14 provides that
Passing of A special resolution at a general meeting of shareholders should be passed
Special authoring the conversion of public company into a private company and altering
Resolution its AOA, so as to contain the matter specified in section 2(68) namely the three

82
 restrictions, i.e., limiting the total number of members to 200, restricting the
transferability of shares and prohibiting invitation to public for subscribing of its
shares debentures, etc.

Changing Company’s name ought to be changed by adding the word “private” before the
the name of word Limited. As per section 13, it does not require special resolution to be
the co. passed.

Approval of Any alteration having the effect of conversion of a public company into a private
Tribunal company shall not take effect except with the approval of the Tribunal which
shall make such order as it may deem fit.
A public company can be converted into a private company only after the
approval of the Central Government. It cannot be treated as a private company
till the Central Government accords its approval.

Filing of Every alteration of the articles under this section shall be filed with the Registrar
Altered in Form No. INC 27, together with printed copy of altered articles within period
Articles of 15 days.

Rule 33 of Companies (Incorporation) Rules 2014

(1) For effecting the conversion of a private company into a public company or vice versa,
the application shall be filed in Form No. INC-27 with fee.

(2) A copy of order of the competent authority approving the alteration shall be filed with
the Registrar in Form No. INC-27 with fee together with the printed copy of the altered
articles within fifteen days of the receipt of the order from the Central Government.

CONVERSION OF SEC. 8 COMPANY INTO A COMPANY OF ANY OTHER KIND

Section 8(4)(ii) provides that a company registered under section 8 i.e., companies with
charitable objects may convert itself into company of any other kind only after complying with
such conditions as may be prescribed.

Rule 21 and 22 of Companies (Incorporation) Rules 2014

Passing of A company registered under section 8 which intends to convert itself into a
Special company of any other kind shall pass a special resolution at a general meeting
Resolution for approving such conversion.

Explanatory The explanatory statement annexed to the notice convening the general
Statement to meeting shall set out in detail the reasons for opting for such conversion
be annexed to including the following, namely: -
the notice (a) the date of incorporation of the company;
(b) the principal objects of the company as set out in the memorandum of
association;
(c) the reasons as to why the activities for achieving the objects of the
company cannot be carried on in the current structure i.e. as a section 8
company;
83
 (d) if the principal or main objects of the company are proposed to be altered,
what would be the altered objects and the reasons for the alteration;
(e) what are the privileges or concessions currently enjoyed by the company,
such as tax exemptions;
(f) details of impact of the proposed conversion on the members of the
company including details of any benefits that may accrue to the members as a
result of the conversion.

Certified copy A certified true copy of the special resolution along with a copy of the Notice
of Special convening the meeting including the explanatory statement shall be filed with
Resolution the Registrar in Form No.MGT-14 along with the fee.

Application to The company shall file an application in Form No. INC-18 with the Regional
Regional Director with the fee along with a certified true copy of the special resolution
Director and a copy of the Notice convening the meeting including the explanatory
statement for approval for converting itself into a company of any other kind
and the company shall also attach the proof of the notice served to all the
authorities prescribed.

Copy to ROC A copy of the application with annexures as filed with the Regional Director
shall also be filed with the Registrar.

Publication of The company shall, within a week from the date of submitting the application
notice to the Regional Director, publish a notice at its own expense, and a copy of the
notice, as published, shall be sent forthwith to the Regional Director and the
said notice shall be in Form No. INC.19 and shall be published.

Declaration to The Board of directors shall give a declaration to the effect that no portion of
the effect that the income or property of the company has been or shall be paid or transferred
no dividend directly or indirectly by way of dividend or bonus to persons who are or have
/bonus shares been members of the company.

NOC from Where the company has obtained any special status, privilege, exemption,
relevant benefit or grant(s) from any authority such as Income Tax Department, Charity
authorities, in Commissioner or any organization or Department of
case of special Central Government, State Government, Municipal Body or any recognized
status authority, a “No Objection Certificate” must be obtained.

No failure in The company should have filed all its financial statements and Annual Returns
filing financial up to the financial year preceding the submission of the application to the
statements Regional Director.
/Annual
Return
Attach The company shall attach with the application a certificate from practicing
certificate of Chartered Accountant or Company Secretary in practice or Cost Accountant in
compliance practice certifying that the conditions laid down in the Act and these rules
for conversion relating to conversion of a company registered under section 8 into any other
kind of company, have been complied with.

84
Company to On receipt of the application, for the conversion of the Sec. 8 company into a
give up company of any other kind, the Regional Director shall issue an order for
concessions approving the conversion on terms and conditions such as:
enjoyed or (i) The company shall give up and shall not claim any special status,
being enjoyed exemptions or privileges.
(ii) If the company had acquired any immovable property free of cost or at a
concessional cost from any government or authority, it may be required
to pay the difference between the cost at which it acquired such property
and the market price of such property.
(iii) Any accumulated profit or unutilized income of the company brought
forward from previous years shall be first utilized to settle all
outstanding statutory dues, amounts due to lenders claims of creditors,
suppliers, etc.
On receipt of On receipt of the approval of the Regional Director,
Approval of (i) the company shall convene a general meeting of its members to
Regional pass a special resolution for amending its memorandum of
Director association and articles of association.
(ii) the Company shall thereafter file with the Registrar-
(a) a certified copy of the approval of the Regional Director within thirty days
from the date of receipt of the order in Form No. INC-20 along with the fee;
(b) amended memorandum of association and articles of association of the
company.
(c) a declaration by the directors that the conditions, if any imposed by the
Regional Director have been fully complied with.

Issue of Fresh On receipt of the documents referred above, the Registrar shall register the
Certificate documents and issue the fresh Certificate of Incorporation.

CONVERSION OF OPC INTO A PUBLIC CO. OR PRIVATE CO.

Rule 6 of Companies (Incorporation) Rules 2014

Paid up When the paid up share capital of a One Person Company exceeds fifty lakh
capital/ rupees or its average annual turnover during the relevant period exceeds two
turnover of crore rupees, it shall cease to be entitled to continue as a One Person
OPC exceed Company.
prescribed
limits One Person Company where the paid up capital/turnover as the case may be
exceeds the prescribed limits, shall be required to convert itself, within six
months of the date on which its paid up share capital is increased beyond fifty
lakh rupees or the last day of the relevant period during which its average
annual turnover exceeds two crore rupees as the case may be, into either a
private company with minimum of two members and two directors or a public
company with at least of seven members and three directors in accordance
with the provisions of section 18 of the Act.

Alteration of The One Person Company shall alter its memorandum and articles by passing
Memorandum a resolution to give effect to the conversion and to make necessary changes
and Articles incidental thereto.

85
Notice to The One Person Company shall within period of sixty days from the date of
Registrar applicability, give a notice to the Registrar in Form No. INC -5 informing that
it has ceased to be a One Person Company and that it is now required to
convert itself into a private company or a public company.

Penalty for If OPC or any officer of the OPC contravenes any of these rules, OPC or any
default officer of the OPC shall be punishable with fine which may extend to ten
thousand rupees and with a further fine which may extend to one thousand
rupees for every day after the first during which such contravention continues.

Minimum no. A One Person company can get itself converted into a Private or Public
of members/ company after increasing the minimum number of members and directors to
directors to be two or minimum of seven members and two or three directors as the case may
complied on be.
conversion

Rule 7- CONVERSION OF PRIVATE COMPANY INTO ONE PERSON COMPANY

Passing of A private company (other than a company registered under section 8 of the
Special Act) having paid up share capital of fifty lakhs rupees or less or average annual
Resolution turnover during the relevant period is two crore rupees or less may convert
itself into one-person company by passing a special resolution in the general
meeting.

No Objection Before passing such resolution, the company shall obtain No objection in
writing from members and creditors.

File Special The one-person company shall file copy of the special resolution with the
Resolution Registrar of Companies within thirty days from the date of passing such
with ROC resolution in Form No. MGT-14.

File an The company shall file an application in Form No. INC-6 for its conversion
application into One Person Company along with prescribed fees as provided in in the
for conversion Companies (Registration offices and fees) Rules, 2014, by attaching the
following documents, namely: -
(i) The directors of the company shall give a declaration by way of affidavit
duly sworn in confirming that all members and creditors of the company have
given their consent for conversion, the paid up share capital company is fifty
lakhs rupees or less or average annual turnover is less than two crores rupees,
as the case may be;
(ii) the list of members and list of creditors;
(iii) the latest Audited Balance Sheet and the Profit and Loss Account; and
(iv) the copy of No Objection letter of secured creditors.

Issue of On being satisfied and complied with requirements stated herein the Registrar
Certificate shall issue the Certificate.

86
 WH
QUESTIONS

LANGUAGE
 CHOOSE THE
WH RIGHT WORD
QUESTIONS
Use the clues within the questions to decide
which WH question word will help you get the
answer you want. Question words are listed
below to help you.
ANSWER KEY

WHO WHAT WHERE

WHEN WHY HOW

1. ____________________ do you we need to wear a coat in the winter?

2. ____________________ is in charge of the school dance?

3. ____________________ are we meeting to work on our project?

4. ____________________ do we need to bring for the potluck?

5. ____________________ are we going to get home since we missed our bus?

6. ____________________ is the quarterback who threw the winning touchdown?

7. ____________________ are you always late for first period?

8. ____________________ do you want to leave for the party?

9. ____________________ did you put my backpack?

10. ____________________ color is your new dress?

AHAPPYLEARNER.COM 15
 CHOOSE THE
WH RIGHT WORD
QUESTIONS
Use the clues within the questions to decide
which WH question word will help you get the
answer you want. Question words are listed
below to help you.
ANSWER KEY

WHO WHAT WHERE

WHEN WHY HOW

1. ____________________ is the library story time starting?

2. ____________________ didn’t you bring your homework with you?

3. ____________________ kind of drink do you want?

4. ____________________ is the shirt I bought you last week?

5. ____________________ does the store open?

6. ____________________ should I ask about my report card?

7. ____________________ did you finish the project already?

8. ____________________ won the art contest this year?

9. ____________________ is the dog’s new toy?

10. ____________________ did you get for number three?

AHAPPYLEARNER.COM 16
 CHOOSE THE
WH RIGHT WORD
QUESTIONS
Use the clues within the questions to decide
which WH question word will help you get the
answer you want. Question words are listed
below to help you.
ANSWER KEY

WHO WHAT WHERE

WHEN WHY HOW

1. ____________________ do you make a peanut butter and jelly sandwich?

2. ____________________ lives in the last house on the right?

3. ____________________ did you make a bad grade on the project?

4. ____________________ do you need to wash the dishes?

5. ____________________ do you wear coats in the winter?

6. ____________________ do you play chess?

7. ____________________ taught you in the first grade?

8. ____________________ do birds fly south in the winter?

9. ____________________ kind of food do they serve at that restaurant?

10. ____________________ do we leave for the field trip?

AHAPPYLEARNER.COM 17
 CHOOSE THE
WH RIGHT WORD
QUESTIONS
Use the clues within the questions to decide
which WH question word will help you get the
answer you want. Question words are listed
below to help you.
ANSWER KEY

WHO WHAT WHERE

WHEN WHY HOW

1. ____________________ do you go to buy those shoes?

2. ____________________ did the baseball end up on the roof?

3. ____________________ were you born?

4. ____________________ are plants only green during the summer and spring?

5. ____________________ is the president of the student association?

6. ____________________ does Fall officially begin?

7. ____________________ is the answer to question number six?

8. ____________________ are your final exams?

9. ____________________ is the party going to be?

10. ____________________ is going to bring the chips and dip?

AHAPPYLEARNER.COM 18
 CHOOSE THE
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QUESTIONS
Use the clues within the questions to decide
which WH question word will help you get the
answer you want. Question words are listed
below to help you.
ANSWER KEY

WHO WHAT WHERE

WHEN WHY HOW

1. ____________________ do you make chicken pot pie?

2. ____________________ are planes able to stay in the sky?

3. ____________________ is the best place to buy a new computer?

4. ____________________ taught the lesson on dinosaurs?

5. ____________________ are we having for dinner?

6. ____________________ are our projects due?

7. ____________________ do people think the movie is sad?

8. ____________________ can I find art materials for that class?

9. ____________________ do I need to make hot chocolate?

10. ____________________ is the concert?

AHAPPYLEARNER.COM 19
 CHOOSE THE
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QUESTIONS
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answer the questions below. Answer choices
are provided in the Answer Key. Use each
answer one time!
ANSWER KEY
a. Lewis hasn’t made it here yet. f. He is hiding behind the couch.
b. He’ll be here at 4:30. g. I need glue, markers, and paper.
c. You can put them on the counter. h. You need to click the button 2 times.
d. She lives at 210 E. Main Street. i. We should break it to her gently.
e. It will open at 9:00 AM. j. I think Mary is going to make it.

1. __________ What time is John going to get to our house?

2. __________Where is the dog hiding?

3. __________ How should we tell her about her cat getting lost?

4. __________ When is the store going to open?

5. __________ Who is going to make the cake for his party?

6. __________ Where does Kendra live?

7. __________ Why aren’t we starting the TV show?

8. __________ How do you change the input on the TV?

9. __________ Where should I put the groceries?

10. __________ What do you need to finish the project?

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Use your knowledge of question words to
answer the questions below. Answer choices
are provided in the Answer Key. Use each
answer one time!
ANSWER KEY
a. That other boy pushed me down. f. I think Mark did it.
b. It is green. g. He was worried about his math test.
c. I made it using an origami pattern. h. It is next Saturday.
d. They’re in the attic. i. Jane and Lacy saw it happen.
e. I’d like to play Frisbee. j. I should be finished in a couple of days.

1. __________ When is the next football game?

2. __________Where did you store the winter coats?

3. __________ How long do you think it will take to finish the book?

4. __________ Why are you crying?

5. __________ Who put the thumb tack on the teacher’s chair?

6. __________ What do you want to do this weekend?

7. __________ Why did he skip school today?

8. __________ What color is your new backpack?

9. __________ How did you make that tree topper?

10. __________ Who saw the little boy fall?

AHAPPYLEARNER.COM 21
 CHOOSE THE
WH RIGHT ANSWER
QUESTIONS
Use your knowledge of question words to
answer the questions below. Answer choices
are provided in the Answer Key. Use each
answer one time!
ANSWER KEY
a. Open the program, insert slides, type the f. We should call Mike Lewis.
information. g. He keeps them in the bottom drawer.
b. The answers to chapter five. h. It should be delivered by noon tomorrow.
c. It’s their dream to go to space. i. The answer cannot be negative.
d. Marvin’s on Main Street is the best. j. Katie said she would bring Sprite and
e. Cover our answer pages and whisper. sweet tea.

1. __________ Who should we call to find out the address?

2. __________Where is the best place to get pizza?

3. __________ Why do astronauts choose to go to space?

4. __________ When is the food supposed to be delivered?

5. __________ What did she say was due tomorrow?

6. __________ How do I create a Power Point?

7. __________ Why is -52 not the answer?

8. __________ Who is in charge of bringing the drinks?

9. __________ Where does Mr. Burns keep the extra pencils?

10. __________ How do we keep them from hearing our answers?

AHAPPYLEARNER.COM 22
 CHOOSE THE
WH RIGHT ANSWER
QUESTIONS
Use your knowledge of question words to
answer the questions below. Answer choices
are provided in the Answer Key. Use each
answer one time!
ANSWER KEY
a. It needs to start at 7:00 so we can have the f. It has several updates.
stage clean by midnight. g. We should leave at 5:00 AM.
b. We need to turn in a paper and a poster. h. The cover is blue.
c. Turn right onto East Main Street. i. We should hang ferns and curtains.
d. The draft is due next Wednesday. j. John, Andrew, and Sarah in our group.
e. It has great characters.

1. __________ When do we have to turn in our rough draft?

2. __________Who is going to be in our group?

3. __________ Why is that your favorite book?

4. __________ What do we have to turn in for the project?

5. __________ How do we get to their house?

6. __________ When should we leave for the trip?

7. __________ Why does the new version cost so much?

8. __________ How should we decorate the stage?

9. __________ What color is the cover of that book?

10. __________ Why do we need to start the show at 7:00?

AHAPPYLEARNER.COM 23
 CHOOSE THE
WH RIGHT ANSWER
QUESTIONS
Use your knowledge of question words to
answer the questions below. Answer choices
are provided in the Answer Key. Use each
answer one time!
ANSWER KEY f. The magma cannot reach the earth’s
surface.
a. Policies go through 3 branches to become
g. Mix milk, sugar, and salt.
law.
h. We need to start the fire in about 30
b. My favorite flavor is lemon lime.
minutes.
c. We are going to Florida.
i. You can buy one at Stacy’s.
d. Ms. Jones will be filling in today.
j. The movement of cats makes dogs chase
e. We should bring buns and chips.
them.

1. __________ Who is going to be our substitute teacher today?

2. __________Where are we going for our summer vacation this year?

3. __________ How does the government make decisions?

4. __________ Why do dogs and cats dislike each other?

5. __________ What should we bring to the barbecue?

6. __________ When do we need to light the fire for s’mores?

7. __________ What is your favorite flavor candy?

8. __________ Why are most volcanoes dormant?

9. __________ How do I make homemade ice cream?

10. __________ Where can I buy a new sketchpad?

AHAPPYLEARNER.COM 24
 1

Maejo University, Chiang Mai

LE222 SOUND AND ENGLISH SOUND SYSTEMS 2012/1

STRESS IN ENGLISH WORDS

INTRODUCTION
Stress is one of the important elements in English spoken language. Without
the sound knowledge of stress, learners of English may have difficulty understanding
English spoken language and the native speakers of English may fail to understand.
For example when you say, “I love dessert”, you have to be clear what you mean.
Whether you mean “the sweet food you eat after meal” or “a large area of land that
has very little water and very few plants growing on it”. This means you need to place
stress on the right syllable. If the stress falls on the first syllable (desert), it means “a
large area of land that has very little water and very few plants growing on it” while
if the stress falls on the second syllable (des sert), it means “the sweet food you eat
after meal.”
This lesson deals with word stress in English. Learning English word stress
can give the general overview of how native speakers put stress in English words.
And this could help the learners of English understand better the nature of sentence
stress.

WHAT IS STRESS?
A stressed syllable is in some way more prominent than the others in the same
word. According to Ladeforge (1993: 249-250), a speaker stresses a syllable “by extra
contraction of the muscles of the ribcage and by extra activity of the laryngeal
muscles,” and perhaps also by “increases in the muscular activity in the articulatory
movements.” By this definition, it seems that stressed syllable involves physiological
aspects of speech sounds, the speaker may be unconsciously aware of these changes
when he/she speaks. However, the hearer may perceive stress on a syllable by means
of several audible phenomena. A stressed syllable often exhibits at least one or two of
the following characteristics:
1.) It is louder because there is more air coming from the lung by extra
contraction of the muscles of the rib cage. (Spoken more loudly)
2.) It is high in pitch because there may be extra activity of the pharyngeal
muscles. (higher pitch of voice)
3.) It is longer because the speech sound is produced by using more muscular
energy in the articulatory movements in the vocal tract; so it is said that the
vowels in the stressed syllable are longer than those in unstressed
syllables. (longer vowel)
 2

The following words have three syllables; faculty, computer, guarantee.

The syllable that receives stress means that it is perceived as louder, higher in pitch of
voice and longer in duration. Thus, we get FACulty, comPUter, guaranTEE.

Note: Normally, the stress symbol ( ‘ ) – as a shorthand symbol - is marked in front of

the stressed syllable, for example ‘faculty, but in here capital letter is sometimes used
to show stressed syllable in order to help the students notice the stressed syllables
easily. In a dictionary, you can find the stress mark in front the stressed syllable.

Activity: Guessing stress

Guess where the stress of these words fall, then check with the teacher and put the
following words into the correct stress group (pair work)
papaya kangaroo whispering romantic solution
guarantee national protection management company
personnel understand connection examine beautiful
benefit commercial provider digital excellent
employee correspond resistance embarrass magical
unhappy undergo

whispering papaya understand

Can you think of any words you know that fit in these stress patterns above?
 3

WHAT IS UNSTRESSED?
As stressed syllables are characterized as louder, higher in pitch and longer in
duration, an unstressed syllable therefore phonetically means the absence of those
features.
To get the clearer picture of the concept of unstressed syllable, some examples
of stressed syllables are demonstrated. In the word, faculty, it is the first syllable that
receives stress; so this implies that the last two syllables are unstressed. And, in the
word, computer the second syllable is stressed; so this means that the first and the last
syllable are unstressed. Finally, the word, guarantee, the last syllable receives stress;
thus the first two syllables are unstressed. However, above is the simplified concept of
unstressed syllable. To understand better what unstressed syllable is, weak syllable
will be explained.

Weak syllable
The distribution of strong and weak syllables is important in understanding
stressed and unstressed syllables in English. For this part, general characteristics of
weak syllables will be discussed to understand better what unstressed syllable is.
It is found that the vowel in a weak syllable tends to be shorter, lower in
intensity than strong vowel and also different in quality. For example, in the word,
Christmas s/, the second syllable, which is weak, is perceived as shorter
than the first, is less loud and has a vowel that cannot occur in strong syllables.
The vowel sounds that give weak syllables in English are for example
- schwa 
- close front unrounded vowel 
- syllabic consonants 
1.) Schwa is a commonly occurring vowel sound in English. It
usually appears within the unstressed syllables. It is an unstressed
sound. There are various spellings that represent schwa 
Spelt with a, as in above, arrive, arise
Spelt with e, as in supplement, secret, quiet, prophecy, happen
Spelt with o, as in mosquito, today, potato, together
Spelt with u, as in supplant, supportive
Spelt with ar, as in polar, regular, monarchy, particular
Spelt with or, as in forgetful, doctor, horror
Spelt with er, as in winter, mother, terrace, butterfly

Schwa  also occurs in the following words endings.

-ous, as in dangerous, autonomous
-ion, as in television, vision, appreciation, information, pollution
-ate (adjective endings), as in private, accurate, intimate, desolate
 4

2.) High front unrounded vowel is also found as an unstressed

vowel. There are various spellings.
in word final position ending ending with “y” or “ey” as in hungry,
witty, happy, bony, creepy, funny, valley, chimney.

Syllabic consonant 

A syllabic consonant is a phonetic element that normally patterns as a consonant, but

may fill a vowel slot in a syllable.

Syllabic is the most common syllabic consonant which gives

unstressed sound for example
poodle : crystal 
noodle :/ social 
little / vital /
channel / tunnel 
puddle /

Syllabic is the most frequently consonant found and important of

the syllabic nasals. Here are examples.
button 
fasten 
brighten 

LEVELS OF STRESS
For this part, level of stress in simple words is demonstrated. Although it is
artificial to learn levels of stress in isolation, it helps a lot to see levels of stress more
clearly than look at them in context and connected speech.
For example the word, about, the stress falls on the second syllable and the
first syllable is perceived as a weak syllable. To this, we can hear aBOUT louder in
duration and higher in pitch. Stress in English word can be divided into three level
distinctions which are primary stress, secondary stress and unstress.
Primary stress refers to the prominence that gives the strongest type of stress.
The stress symbol ( ‘ ) is marked in front of the stressed syllable in a dictionary.
Secondary stress refers to a type of stress that is weaker than the primary
stress but is stronger than unstress syllable. The symbol ( ‚ ) is marked in front of
secondary stressed syllable in a dictionary.
Unstress means the absence of prominence or in other words, the absence of
loudness, length of duration and pitch height. There is no mark for unstress.
 5

PLACEMENT OF STRESS
It is said that when native speakers of English encounter unfamiliar words,
they can know how and where to place the stress correctly. Therefore there should be
some rules that help learners of English understand where to place stress within
English words. The following rules on stress placement are hoped to help learners of
English pronounce English words more accurately. Please note that these rules may
not be applicable to all the words in English, as there may be some exceptions.

1.) Two-syllable words

The rule for this is easy. If the first syllable is stressed, then the second
syllable is unstress.
• primary + unstress (most unstressed syllables are weak syllables or have short
vowel sounds)
e.g. ‘ whistle ‘ little
‘ wealthy ‘ happy
‘ body ‘ shorten
‘ weaken
• primary + secondary
e.g. ‘ pas ‚time ‘ va ‚lue
‘ guide ‚line ‘ guide ‚book
• unstress + primary
e.g. a ‘bove re ‘place
be ‘long be ‘low
se ‘duce
• secondary + primary
e.g. ‚un ‘fair ‚dis ‘arm

2.) Three-syllable words

• primary + unstressed + secondary e.g. telegraph, organize, victimize, advertise
• primary + unstressed + unstressed e.g. history, fantasy, messenger, memory
• secondary + unstressed + primary e.g. kangaroo, uncontrolled, personnel
• secondary + primary + unstressed e.g. unhappy, bilingual, approving, fantastic
• unstressed + primary + unstressed e.g. continue, deliver, emotion, electric

3.) Compound words

A compound word refers to two words which are joined to form a new word.
Some compounds are made of more than two words. However, we will restrict our
attention to compounds that are made of two words. The main characteristic of
compounds is that it can exist independently as English words. For example, a
compound ‘science fiction’ is composed of two independent English words, which are
‘science’ and fiction.
Compounds are written in three different ways.
 6

1.) As one word e.g. armchair, sunflower, teapot, keyboard, oversea,

superman,
2.) As words separated by a hyphen e.g. fruit-cake, gear-change
3.) As two words separated by a space e.g. tea tree, horse racing, car park,
car seat, milk float, baby boom
Commonly, compounds have the stress on the first element:
TYPEwriter KNOW-how
SUITcase RED-hot
POSTscipt PROOFread
GROWNup GOODwill
ROLLout STATEwide
STOCKroom SCHOOLroom
TEA-cup SUNrise

Compounds with adjectival first element and the –ed morpheme at the end usually
stress on the first syllable of the second element.
bad-TEMpered heavy-HANDed
old- FAshioned half-HEARTed
hard-HEADed hot-HEADed
kind-HEARTed evil-MINDed
light-HEARTed light-HEADed
empty-HANDed
Compounds in which the first element is a number in some form, the number in the
initial position does not receive stress.
three-QUARters second-CLASS
five-FINger second-BEST
three-CORNered one-SIDEd
four-SQUARE five-STAR

However, the stress pattern is not always fixed. Stress position may change as
a result of the stress on other words occurring next to the word in a question which is
the case of connected speech that will be discussed further.
Also, it may result from the disagreement on the placement of some words by
native speakers. But this is not a big problem and it would be wrong to say that which
option is correct or incorrect, for example, the word “ice-cream” (either ICE-cream
or ice-CREAM) and the word “kilometer” (either Kilometer or kiLOmeter).

SYLLABLE STRUCTURES
According to Burquest 2001, syllable structure is often discussed in terms of
consonant-vowel patterns, commonly abbreviated as C (for consonant) and V (for
vowel). CVC therefore shows a single consonant followed by a single vowel,
followed by another single consonant. In the construction of syllables the typical
proposal is that there is a hierarchical arrangement of constituents. The Nucleus and
 7

coda are combined into a Rhyme node, with the Rhyme and Onset then combined into
a syllable (typically designated with a lower case sigma):
A syllable tree is demonstrated below:
ơ
 
 O R

N C

C V C 
ơ = syllable, O = onset, R = rhyme, N = nucleus, C = coda
a.) Crash
ơ

O R

N C

C C V C




) Clips
ơ

O R

N C

C C V C C


 8

(c ) bird
ơ

O R

N C

C V C


Activity: Draw a syllable trees for the following words

green skirt

turn eighths

axed bats
 9

STRESS AND ITS FUCNTIONS

1.) To show syntactic function (part of speech) of the words. In some words,
if stress falls on the first syllable it is a noun and if the stress falls on the last syllable,
it is a verb. These noun – verb pairs are, for example, the words export and produce.
This rule is also applicable to many noun – verb pairs.
Word-class Pairs
There are many two syllables in English that have different stress patterns
according as their part of speech such as verbs, nouns or adjectives although their
spellings are the same. When they function as verbs, they are stressed on the last
syllable and when they function as nouns or adjectives, they are stressed on the first
syllable.
The following examples are cited from Roach, Peter (2000). English Phonetics
and Phonology: Cambridge University Press.
(V = verb, A = adjective, N = noun)

noun verb
abstract  
conduct :kt/ nkt/
contract :  
contrast /:   
desert     :
escort :   :
export :
  :
import :   :
insult     
object :   
perfect :
  
permit :   
present    
produce :   :
protest    
rebel     
record     :
subject     
 10

2.) To distinguish between a compound word (two words are joined to form
a new word). And a noun phrase.
For example:
GREENhouse (a building with glass sides and a glass roof for glowing plants) = a
compound
a green HOUSE (a house which is painted green) = a noun phrase

Stress on the first word Stress on the second word

QUIET room quiet ROOM
e.g. The quiet room is for private study e.g. This is a nice quiet room where we
can talk.
BLACKbird black BIRD
e.g. There is a black bird on the lawn. e.g. Look at the big black bird there.
RAINfall rain FALL
e.g. the rainfall is expected to increase. e.g. Did it rain yesterday?
WHITE house white HOUSE
e.g. US president lives in the White house e.g. I mean the white house over the
corner.
HOT dog (a type of food) hot DOG (an over heated animal)
e.g. I ordered hot dog for lunch.
ENGLISH teacher English TEACHER
e.g. My teacher’s nationality is English. e.g. My teacher teaches English.

3.) To be associated with grammatical structures of words. This part deals

with suffixes. It means that some prefixes can change the stress patterns within words.
For example, when suffix –ation is added to the words apPREciate, inFORM,
proNOUNCE, CLArify, CLASsify, stress is shifted to the suffix-ation such as
appreciAtion, informAtion, pronunciAtion, clarificAtion, classificAtion.
Suffixes are much easier to predict than prefixes. However, as there are many
suffixes, we will look at only the common and productive suffixes.
Suffixes carrying primary stress
‘-ee’: adVISE adviSEE
emPLOY emploYEE
interVIEW intervieWEE
eVACuate evacuEE
ABsent absentEE

‘-eer’: MOUNtain mountainEER

‘-ese’: CHIna ChiNESE

JaPAN JapaNESE

‘-esque’: PICture pictuRESQUE

 11

‘-ation’: conTInue continuAtion

inFORM informAtion
CLASsify classificAtion
CLArify clarificAtion
asSOciate associAtion
acCELerate accelerAtion

Suffixes that do not affect stress placement

‘-able’: COMfort COMfortable
CURE CUrable
PRINT PRINtable
apPLY apPLICable
SOcial SOciable

‘-age’: perCENT perCENtage

POST POStage

‘-al’: reFUSE reFUsal

arRIVE arRIval
reMOVE reMOVal
reHEARSE reHEARSal
MUsic MUsical
deNY deNIal

‘-en’: SHORT SHORten

WEAK WEAken
STRENGTH STRENthen
BROAD BROAden
SWEET SWEEten
‘-ful’: BEAUTy BEAUtiful
SPOON SPOONful
MIND MINDful
PIty PItiful

‘-ing’: MARket MARketing

preSENT preSENting
ADvertise ADvertising
WOrry WOrrying
Open Opening

‘-ish’: YELlow YELlowish

BAby BAbyish
BLUE BLUish
 12

SELF SELfish
TURkey TURkish
SWEden SWEdish

‘-ive’: aBUSE aBUSsive

creATE creAtive
preVENT preVENtive
atTEND atTENtive
deCIDE decisive

‘-like’: CHILD CHILDlike

WAR WARlike
LAdy Ladylike

‘-ly’: FREquent FREquently

ACtual Actually
SECret SECretly
inCREASing inCREASingly
resPECtive resPECtively
HAbitual HAbitually

‘-ment’: exCITE exCITEment

GOVern GOVernment
aMUSE aMUSEment
enterTAIN enterTAINment

‘-ness’: HAPpy HAPpyness

LONly LONliness
YELlow YOLlowness

‘-ous’: DANger DANgerous

POIson POIsonous

‘-wise’: CLOCK CLOCKwise

Suffixes that influence stress in the stem: in this case the primary stress is on
the last syllable of the stem.
‘-ic’: CLImate cliMAtic
HEro heROic
GIant giGANtic
ROmance roMANtic
PHOneme phoNEmic

‘-eous’: adVANtage advanTAgeous

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4.) To give special emphasis. For example, the request, “Pass me the salt.”
Can have two contrast meaning depending on where the speaker put the stress or give
the emphasis. If the speaker puts the stress on the word, “me”, it means “pass the salt
to me not to him to her or someone else.” And if the speaker emphasizes on “salt. “ it
means “pass me the salt, not sugar, sauce or something else.” This function of stress
will be discussed further in sentence stress in English.

References
Bickford, A. C. & Floyd, R. (1981) Articulatory Phonetics; tools for analyzing
the world languages, 4th ed. The Summer Institute of Linguistics.
Burquest, D. A. (2001). Phonological Analysis: A Functional approach, 3rd ed.
The Summer Institute of Linguistics.
Cruttenden, A. (1997). Intonation. Cambridge University Press.
Celce-Muricia, M., Brinton, D.M., Goodwin, J. M. (1996). Teaching Pronunciation.
Cambridge University Press.
Freeouf, P. & Nokaew, P. (1996). Phonetics in English. Chiang Mai University,
Faculty of
Humanities.
Kelly, G. (2000). How to teach pronunciation. Bluestone Press, Charlbury,
Oxfordshire, UK.
Ladefoged, P. (1993). A Course in Phinetics. Harcourt Brace Jovanovich, Inc.
Roach, P. (2000). English Phonetics and Phonology. Cambridge University Press.
Taylor, L. (1993). Pronunciation in Action. Prentice Hall International.