Classification of Companies
Classification and registration of companies
The Companies Act, 1956 broadly classifies companies (classification of companies) into private and public companies and provides a regulatory environment based on such classification. However, with the growth of the economy and the increasing complexity of business operations, the forms of corporate organizations change.
The law requires taking into account the requirements of different types of companies that may exist and seeks to provide general principles that all types of companies can refer to when formulating their corporate governance structure. Rigid structures, unnecessary controls, and regulations put entrepreneurs’ initiatives at risk.
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Private companies and small companies, which typically do not go for public issues or deposits for their financial needs, but use their personal or home resources, require flexibility and operation, and independence at a low cost. Equally, public companies, which use capital from the public, should be subject to more rigorous governance of corporate governance.
For the smooth transition of companies from one type to another type, the companies act should ensure the classification of companies enables the comprehensive framework of various forms of corporate organization.
Classification of Companies
Corporate form can take many shapes to respond to the environment efficiently. Therefore the Company Law should recognize several classifications of companies. The committee today points to the criterion of classification based on prudent forms but recognizes that such classification can never end.
i) By size:-
a) Small companies b) Other companies
ii) Classification of companies may be based on the number of members:–
a) One-person company. b) limited liabilities partnership. c) Private limited company and d) Public limited company.
iii) On the basis of control:
- a) Holding companies b) Subsidiary companies
iv) On the basis of liability:
- a) Limited (I) Share (II) Guaranteed (with or without share capital) unlimited
v) Depending on the mode of access to capital:
- a) Listed companies b) Unlisted companies
- The law should recognize the potential for diversity in forms of companies and instead of seeking to regulate specific aspects of each form, provide for principles that are based on clear and widely accepted principles of wealth creation Enabling economic inter-action.
.1 The Committee sees no reason why small companies should bear the consequences of regulation that may be designed to ensure the balance of interests of the stakeholders of large, widely held corporates.
The decision-making process by relieving the section of companies from the selection statutory internal administrative procedure should enable the company’s acts. Such companies should be subjected to low financial reporting and audit requirements and simplified capital maintenance arrangements.
Essentially governance for small companies should enable them to achieve transparency at lower costs through simplified requirements. Such a framework can be implemented through a waiver, through waivers, as the schedule of the Act is consolidated.
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.2 The law may also consider an integrated approach under which a framework can be provided for private companies, which may also apply to small companies. However, the definition of small companies can be considered to enable such an arrangement. There are bound to be problems associated with determining size.
In our view, size can be estimated on the basis of gross assets, including fixed assets, current assets, and investments, with turnover not exceeding a particular limit. Since the definition of “small” can change over time, it can be done through rules.
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.3 To qualify for the exemption, a small company should neither be a holding nor a subsidiary of another company. However, the committee does not feel the need to provide a special internal administration and constitutional governance to small companies. This is likely to get in the way of their future development. Instead, the committee recommends enabling limited liability partnerships, such as new vehicles for business, through separate legislation, when necessary.
.4 Associates, Charitable Companies, etc. U / s 25, the licensee of the existing Companies Act, should not be treated as small companies despite their gross assets.
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5 The law should provide a framework for the development of small corporate institutions. However, the exemption should facilitate compliance by small companies in an easy and cost-effective manner. This should not be encouraged by any institution to hide its true size or impede the growth of small companies.
Private companies represent a different set of relationships in terms of ownership, risk, and reward than public companies. Since private companies do not access the capital markets, they require less stringent protections for their shareholders. However, they represent an important organizational form for conducting business.
There is therefore a case for a mild regulator on private companies. The current law provides some exemptions to private companies based on their nature. It is our thought that such approaches may be continued and appropriate.
While good corporate governance is equally important to the success of such private companies, the obligation for the dissemination of corporate process information must be so structured that such enterprises do not lose the flexibility in conducting their business.
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In particular, the law should enable a private company to take any decision it is otherwise empowered to take, without complying with the formalities of the Act if the members of the company agree unanimously. It should be considered on a simplified circular resolution in the case of consensus is not possible.
Since there can also be disputes between members of such companies, the cost of which can ruin the company, governance for private companies should have dispute resolution procedures, which are simplified to the extent possible.