1

T. Thanga pandi murugan,

M.Com., M.Phil., PGDCA., Ph.D., (UGC-NET, TNSET)
Assistant Professor of Commerce,
Sourashtra College, Madurai 625 004
COMPANY ORGANISATION
UNIT– I: Introduction of Company
Company – Definition and meaning – classification of companies – Differences between Private Company
and Public Company.
UNIT– II: Incorporation of a Company and Role of Secretary
Incorporation of a company – company secretary – duties of company secretary in connection with formation
of company–Memorandum of Association – Articles of Association.
UNIT– III: Prospectus and Share Capital
Prospectus – Meaning – Contents – Liabilities for misstatements in prospectus – Statements in lieu of
prospectus – Differences between shares and debentures – Differences between equity shares and preference
shares.
UNIT– IV: Meeting Procedures
Meetings – Types of meetings – Resolution – Types of Resolution – Ordinary Resolution – Special Resolution,
Resolution by Circulars.
UNIT– V: Winding Up
Winding up of a company – Members’ voluntary winding up – Creditors‟ Voluntary winding up – Winding
up subject to the supervision of the court.
TEXT BOOK:
Prof. N.D. Kapoor, Company Law, Sultan Chand Publications.
REFERENCE BOOKS:
1. Prof. S.S.M. Sundaram & Dr. M. Muthupandi, Secretarial Practice, Sree Meenakshi Publication,
Mdurai.
2. Dr. V.M. Selvara, Company Organization, Bharani Publications

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Company: Definition and Meaning
Definition:
A company is a legal entity formed by a group of individuals to engage in and operate
a business—commercial or industrial—enterprise. Companies are recognized as separate
legal entities distinct from their owners.
Meaning:
• Separate Legal Entity: A company has its own legal identity, separate from its
shareholders and managers. It can own property, enter contracts, sue, and be sued.
• Limited Liability: Shareholders’ liability is usually limited to the amount they
invested in the company.
• Perpetual Succession: The existence of a company is not affected by changes in its
membership. The company continues even if the shareholders or directors change.
• Transferability of Shares: Ownership of a company can be transferred by trading
shares without affecting its operations.
• Artificial Person: A company, being an artificial person, can act only through its
board of directors or authorized representatives.
Features of a Company
A company possesses several defining features that distinguish it from other forms
of business organizations:
1.Separate Legal Entity
A company is recognized as a distinct legal entity separate from its shareholders
and managers. It can own property, incur debts, sue, and be sued in its own name.
2.Limited Liability
Shareholders' liability is typically limited to the amount they have invested in the
company. They are not personally liable for the company's debts beyond their investment.
3.Perpetual Succession
The existence of a company is not affected by changes in its membership. It
continues to exist until it is formally dissolved or wound up, regardless of changes in
ownership or management.
4.Transferability of Shares
Shares in a company can be freely transferred, unless restricted by the company's
articles of association. This allows for easy changes in ownership without affecting the
company's operations.
5.Common Seal

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Traditionally, a company used a common seal to signify its approval of documents.
However, the use of a common seal has become optional in many jurisdictions.
6.Artificial Legal Person
A company is an artificial entity created by law. It has legal rights and obligations
but can act only through its board of directors or authorized representatives.
7.Centralized Management
A company's affairs are managed by a board of directors, elected by the
shareholders. The directors are responsible for the overall governance and strategic
direction of the company.
8.Capital Structure
A company raises capital through the issuance of shares to shareholders and may
also issue debt instruments. This capital is used to fund its operations and growth.
9.Regulated Formation and Operation
The formation and operation of a company are governed by specific laws and
regulations, such as the Companies Act. Companies must comply with statutory
requirements regarding registration, reporting, and disclosure.
10.Capacity to Contract
A company has the legal capacity to enter into contracts in its own name. These
contracts are binding on the company and enforceable by law.
11.Corporate Governance
Companies are required to adhere to principles of corporate governance, including
transparency, accountability, and fair treatment of stakeholders. This is often enforced
through regulatory frameworks and listing requirements for public companies.
12.Shareholder Meetings
Companies must hold general meetings where shareholders can discuss and vote
on important matters. Annual General Meetings (AGMs) are mandatory for discussing
financial statements, appointing auditors, and other key issues.
13.Profit Distribution
Profits earned by the company can be distributed to shareholders in the form of
dividends or retained for reinvestment in the company. The decision on profit distribution
is typically made by the board of directors.
14.Taxation
A company is taxed as a separate legal entity. This can result in different tax
treatment compared to other business forms, like sole proprietorships or partnerships.
15.Statutory Records and Registers

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Companies are required to maintain various statutory records and registers,
including records of shareholders, directors, and financial transactions. These records are
often subject to inspection and audit.
16.Statutory Audits and Reporting
Companies must prepare and file financial statements and other reports
periodically. Public companies are typically subject to more rigorous reporting and
auditing requirements compared to private companies.
17.Public Inspection
Certain information about a company, such as its financial statements, directors'
details, and annual returns, must be made available for public inspection. This promotes
transparency and accountability.

Classification of Companies
Companies can be classified based on various criteria. Here’s a comprehensive
breakdown:
1. Based on Incorporation:
1.1 Statutory Companies
-Definition: Incorporated by a special Act of Parliament or state legislature.
-Examples: Reserve Bank of India (RBI), State Bank of India (SBI).
-Features:
- Governed by the provisions of the special Act.
- Typically set up for public utilities or specific functions.
1.2 Registered Companies
-Definition: Incorporated by registration under the Companies Act or similar
legislation.
-Features:
- Must comply with the general provisions of the Companies Act.
- Sub-divided into private and public companies.
2. Based on Liability:
2.1 Companies Limited by Shares
-Definition: Liability of shareholders is limited to the unpaid amount on their shares.
-Examples: Most common form, typical for both private and public companies.
-Features:
- Common in corporate structures.
- Shareholders’ risk is limited to their investment.

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2.2 Companies Limited by Guarantee
-Definition: Members' liability is limited to the amount they agree to contribute in the
event of winding up.
-Examples: Non-profits, charitable organizations.
-Features:
- Often used for clubs, associations, or charities.
- Members do not hold shares but have a guarantee limit.
2.3 Unlimited Liability Companies
-Definition: No limit on members' liability; members may be required to meet any
shortfall in the company’s assets.
-Examples: Rarely used, typically for firms where high confidence is required in
solvency.
-Features:
- Higher risk for members.
- Less common due to potential financial exposure.
3. Based on Number of Members:
3.1 Private Company
-Definition: Restricted to a specific number of members, usually up to 200.
-Examples: Small to medium enterprises, family businesses.
-Features:
- Minimum 2 members, maximum 200.
- Shares are not freely transferable.
- Cannot invite the public to subscribe to shares.
3.2 Public Company
-Definition: No restriction on the number of members; can offer shares to the public.
-Examples: Large corporations, listed companies.
-Features:
- Minimum 7 members, no maximum limit.
- Shares can be freely traded on stock exchanges.
- Required to disclose financial and operational information publicly.
3.3 One-Person Company (OPC)
-Definition: Owned by a single individual.
-Examples: Small businesses operated by a sole proprietor who wishes to enjoy the
benefits of limited liability.
-Features:

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- Simplified regulatory requirements.
- Suitable for individual entrepreneurs.
4. Based on Ownership:
4.1 Government Company
-Definition: At least 51% of the paid-up capital is held by the government (Central or
State).
-Examples: Bharat Heavy Electricals Limited (BHEL), Oil and Natural Gas
Corporation (ONGC).
-Features:
- Subject to additional governmental oversight.
- Can be formed for strategic purposes.
4.2 Non-Government Company
-Definition: Owned and controlled by private individuals or entities.
-Examples: Reliance Industries, Tata Consultancy Services.
-Features:
- Operate under standard corporate regulations.
- Greater operational flexibility compared to government companies.
5. Based on Control:
5.1 Holding Company
-Definition: Controls another company by holding a majority of its shares or
controlling its board of directors.
-Examples: Alphabet Inc. (holding company for Google), Berkshire Hathaway.
-Features:
- Controls subsidiary companies.
- Can influence or dictate subsidiary operations and policies.
5.2 Subsidiary Company
-Definition: Controlled by a holding company.
-Examples: YouTube (subsidiary of Alphabet), LinkedIn (subsidiary of Microsoft).
-Features:
- Governed by the holding company.
- Separate legal entity but often follows strategic directions set by the holding
company.
5.3 Associate Company
-Definition: Holding company holds significant influence but not full control (typically
20-50% ownership).

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-Examples: Strategic investments where the investor company wants substantial
influence.
-Features:
- Influence on policy decisions, but does not control.
- Often used for strategic partnerships.
6. Based on Scope:
6.1 Domestic Company
-Definition: Operates primarily within the country where it is registered.
-Examples: Reliance Industries in India.
-Features:
- Subject to domestic laws and regulations.
- Primarily serves the local market.
6.2 Foreign Company
-Definition: Registered in one country but operates in another.
-Examples: Apple Inc. operating in India.
-Features:
- Must comply with local regulations of the host country.
- Often involves cross-border operations and management.
7. Based on Ownership and Control:
7.1 Listed Company
-Definition: Its shares are listed on a recognized stock exchange and can be freely
traded.
-Examples: Infosys, Wipro.
-Features:
- Subject to regulatory scrutiny and reporting requirements.
- Greater access to capital markets.
7.2 Unlisted Company
-Definition: Its shares are not listed on any stock exchange.
-Examples: Large private firms, startups.
-Features:
- Not subject to the same level of regulatory oversight as listed companies.
- Shares are traded privately.
8. Based on Access to Capital:
8.1 Company Limited by Guarantee

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-Definition: Members' liability is limited to the amount they guarantee to contribute
in case of liquidation.
-Examples: Clubs, charitable organizations.
-Features:
- No share capital.
- Suitable for non-profit activities.
8.2 Company Limited by Shares
-Definition: Liability of shareholders is limited to the unpaid amount on their shares.
-Examples: Common structure for businesses.
-Features:
- Can issue shares to raise capital.
- Shareholders’ liability is limited to their investment.
9. Based on Purpose:
9.1 Non-Profit Company (Section 8 Company in India)
-Definition: Formed for promoting commerce, art, science, religion, charity, or any
other useful purpose.
-Examples: Educational institutions, NGOs.
-Features:
- No distribution of profits to members.
- Exemptions and concessions under various laws.
9.2 Profit-Oriented Company
-Definition: Formed with the primary objective of earning profit.
-Examples: Manufacturing companies, trading companies.
-Features:
- Profits are distributed to shareholders.
- Focus on commercial activities.
10. Based on Regulatory Criteria:
10.1 Small Company
-Definition: Meets specific criteria for turnover and paid-up capital as defined by law.
-Examples: Emerging enterprises, startups.
-Features:
- Simplified compliance requirements.
- Facilitates growth of small businesses.
10.2 Large Company
-Definition: Exceeds the threshold for turnover and paid-up capital as defined by law.

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-Examples: Established corporations.
-Features:
- Extensive regulatory and reporting requirements.
- Significant impact on the economy.
Summary
Companies can be classified based on incorporation, liability, number of members,
ownership, control, scope, stock exchange listing, access to capital, purpose, and
regulatory criteria. Each classification addresses different operational, regulatory, and
strategic aspects, catering to the diverse needs and goals of business enterprises.

Basis Public Company Private Company

A private limited company

A public limited company means
refers to a company that is not
a company that is listed on a
Meaning listed on a stock exchange and
recognised stock exchange and
the shares are held privately by
whose shares are publicly traded.
the members concerned.

Number of Minimum 7 and there is no limit Minimum 2 and Maximum 200

Members for Maximum members. members.

Articles of It can draw up its own articles of They must draw up their own
Association association or adopt Schedule F. articles of association.

The shares of a publicly traded Shares of a private company

Transfer of company are freely transferable, are not freely transferable, as
shares i.e., freely tradable in an open the articles of association
market called the stock exchange. contain restrictions.

Public It may invite the public to Issuance of shares or bonds to

subscriptions subscribe for its shares or bonds. the public is prohibited.

Issuing a It may issue a prospectus or may Issuing a prospectus is

prospectus opt for a private placement. prohibited.

The company cannot issue shares

Minimum The company may allot shares
unless it reaches the minimum
allotment without obtaining a minimum
subscription specified in the
amount subscription.
prospectus.

You can start a business

After incorporation, it requires a
Starting a immediately after receiving an
certificate of commencement of
business extract from the commercial
business.
register.

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Basis Public Company Private Company

Appointment One director may be appointed by Two or more directors may be

of director one resolution. appointed by one resolution.

Statutory
Statutory meeting is mandatory Statutory meeting is optional.
meeting

A public company must A private company must

Use of suffix compulsorily include the words include “Private Limited” as a
“Limited” in its name. suffix in its name.

A public company must

Disclosing A private company does not
compulsorily issue quarterly and
reports to the have to disclose its financial
annual financial statements to the
public results to the public.
public.

COMPANY ORGANIZATION – STUDY MATERIAL (Class: III B.Com “B” A.Y: 2024-25)