Types of Companies

 Types of Companies

Public & Private Company: On the basis of number of members and capital, companies
may be classified into (i) Public Companies & (ii) Private Companies. As per the
Companies Act, 2013 a private company must have a minimum paid-up capital of Rs.
1.00 lakh, minimum of 2 members and a maximum of 200 members. One Person
Company is a private company with only one member. The Companies Act restricts the
rights of members of a private company to transfer its shares and also prohibits an
invitation to the public to subscribe to any shares or the debentures of the company.
A public company means a company, which is not a private company and has a minimum
paid up capital of Rs. 5.00 lacs. A private company which is a subsidiary of a public
company is deemed to be a public company. A public company must have a minimum of
7 members. A public company can issue shares to the general public and the
transferability of shares and related issues etc. are controlled by SEBI. As per the Act,
both the Private as well as Public companies can start its operations only after obtaining
Certificate of Incorporation and Certificate of Commencement of Business.
The Companies Amendment Bill, 2014 (passed by the parliament in 2015) waives the
conditions relating to the minimum amount of capital in respect of both categories of
companies i.e. private as well as public companies.
Government company: A Government company is one in which not less than 51% of
paid up share capital is held by the Government (Central / State). A subsidiary of a
Government company is also a Government company.
Advances to non-corporate clients e.g., partnership firms
It is preferable to finance partnership firms which are registered with the Registrar of
Firms of the local area. The loan account should be opened in the name of the firm and
not in the name of the individual partners irrespective of the fact that one or more of the
partners may be authorized to operate the account. Apart from collateral security, if any,
by way of personal guarantee of a third party, personal guarantee of the partners should
be obtained especially when the firm is not registered as per the Partnership Act.
Whenever changes take place in the constitution of the firm either by death, retirement,
insolvency, expulsion or inclusion of partner, a new partnership is formed. In such cases,
the limits granted to the old firm should be cancelled and credit facilities extended to the
reconstituted partnership firm after examining afresh the creditworthiness of the partners
of the firm and other relevant factors for taking a credit decision. Till the formalities
concerning reconstitution of the partnership of new firm are completed and necessary
loan documents are executed, as interim measure for the sake of continuity of business
activity, operations in the existing Bank account may be permitted only after obtaining a
stamped continuing letter of guarantee signed by all the outgoing partners as well as the
incoming partners. Where personal guarantee of third party has been obtained,
confirmation from the guarantor must also be obtained before allowing operations in the
existing account. It should be ensured that the necessary formalities are completed within
a period of two months.
Where reconstitution takes place in case of a partnership firm, which has created
equitable mortgage of immovable property of the partnership firm in favour of the Bank
for collaterally securing the loans, an agreement on prescribed proforma should be
obtained without disturbing the existing mortgage.
A minor can be a partner of a partnership firm, however he cannot be held liable
personally for any debt of the firm, so this aspect has to be kept in mind while granting
credit facilities to partnership firms.
Limited Liability Partnership (LLP)
LLP is a new corporate form designed to provide an alternative to the traditional
partnership (with unlimited liability on part of the partners) and the corporate statute
(statute based governance with limited liability on part of the shareholders). The LLP
form of business is a hybrid structure between the two, which provides the benefits of
limited liability but allows the partners the flexibility of organizing their internal structure
as a partnership based on a mutually arrived agreement. The Limited Liability Act, 2008
allows two or more persons associating for carrying on a lawful business ‘with a view to
profit’ to set up an LLP.
Hindu Undivided Family (HUF)
An HUF is represented by the head of the family, known as Karta, and the members of
the HUF are known as coparceners. Karta represents the HUF and is authorized to
transact on behalf of the HUF by virtue of age old practice sanctified by law.
With the introduction of Hindu Succession (Amendment) Act 2005, from September 6,
2005, daughters are also given the status of a coparcener.
Karta manages the HUF property on behalf of his family members. However, his powers
are limited and a charge created by him is binding on the family property only when the
loan taken by him is:
• For the purposes of the necessity of the family or,
• For the benefit of the family or,
• For repayment of a lawful antecedent debt due from the family.
Trusts
The Indian Trusts Act, 1882 defines a Trust as an obligation annexed to the ownership of
property and arising out of a confidence reposed in an accepted by the owner, or declared
and accepted by him, for the benefit of another, or of another and the owner
A Trust is formed for the benefit of certain person(s) or purpose. The Trust Deed contains
the aims and objectives of the trust. It lays down the duties and responsibilities of the
Trustees and also the restrictions/ limitations imposed on them.
Operations of Trust accounts have to be very strictly according to provisions of the Trust
deed.
Cooperative Society
While considering credit facility to a co-operative society, it is necessary to examine the
rules or bye-laws of the society, especially the terms on which it can borrow under the
relevant section of the State Co-operative Societies Act, 2002. The lending bank should
obtain a certificate from the society stating that the credit facility sought is within the
overall borrowing limit authorized by the Registrar of Co-operative Societies.