Explain the following terms/concepts.
1) Dormant company
(1) A company which is registered for a future project, but not yet made any significant accounting transactions in the last two years and also not yet filed financial statements or annual returns in the last two years, after making an application under Section 455, is called dormant company.
(2) Dormant companies may develop and function properly in the near future.
2) Holding company
(1) A company which controls the management of another company is called the ‘Holding Company’. The company which is controlled by another company is termed as a ‘Subsidiary Company’.
(2) A holding company holds more than 50% of the total share capital of subsidiary company and has powers to appoint or remove all or the majority of directors of the subsidiary company.
3) Foreign company
(1) A foreign company means a company incorporated (registered) outside India but having a place of business in India, e.g. Bata India Limited. Nestle India Limited, Whirlpool Corporation, etc.
(2) Within 30 days of the establishment of the business in India, a foreign company has to furnish to the Registrar the different documents such as charter, statute, Memorandum and Articles of Association of the company, the full address of the Registered office, list of directors, etc.
4) Company limited by guarantee
(1) A company limited by guarantee is the one in which the liability of members is limited to the amount of guarantee given by them. This type of company may or may not have a share capital.
(2) Each member of the company promises to pay a fixed amount of money specified in the Memorandum of Association in the event of the dissolution of the company for the payment of the liabilities and debts of the company.
(3) Usually, profit-making is not the aim of such companies. They are usually formed to promote activities in art, literature, sports, education, religion, or other such non-trading activities.
5) Associate company
(1) Term associate means an institution or a company having a subordinate position in or admitted to only partial membership of another institution or a company.
(2) Accordingly, an associate company is one over which another company exercises a significant (means at least 20% of total capital or decision making power) degree of control but the degree of control so applied is less than the degree of control exercised over the subsidiary company.
(3) An associate company in relation to another company means a company over which that another company has significant control or influence but the company over which such significant control applied is not a subsidiary company.
6) Limited Liability
(1) The term ‘liability’ means the state of being responsible for something, especially by law. The liability of a shareholder of a joint-stock company is limited to the extent of the face value of the shares held by him. It is limited up to the unpaid part of the face value of shares held by him; Shareholder is liable to pay only the unpaid amount on his shares. If the share amount is fully paid, then there is no further liability on the part of the shareholder.
(2) The company undertakes greater risks because the liability of the members is limited. In the event of liquidation of the company, the personal property of the shareholders cannot be attached by the creditors of the company in settlement of their debts. In such a case, the shareholders at the most may lose their investments in the shares of the company.
7) Perpetual Succession
(1) The term ‘perpetual’ means eternal or everlasting. A joint-stock company has perpetual succession i.e. continuous existence.
(2) A company is an artificial (legal) person created by the process of law and dissolved only by the process of law. It enjoys a very long and stable life unless it is wound up through the legal process.
(3) The company’s existence and continuation are not affected by death, retirement, insolvency, or insanity of its member or members. The company continues to exist in spite of the changes in its membership. Members may come and go but the company can go on forever.
8) Listed company
(1) A listed company is a company which has issued any of its securities listed on any recognised stock exchange. Security refers to a document issued by a company or a government called ‘the issuer’ and acknowledging that issuer has received money or some other valuable consideration. Security includes shares, debentures, bonds, etc.
(2) A public limited company may be a listed company or unlisted company. The listed companies are required to follow certain provisions of the Companies Act and guidelines issued by the Securities and Exchange Board of India (SE81).
9) One person company
(1) A company, in which one person holds almost the whole of its share capital and has other members just to meet the legal requirement of a minimum number of members, is known as one person company. It is a private company.
(2) It has to comply with all the formalities of a private company that are specified in the Act or rules. The concept of a One-person Company was introduced through the Companies Act, 2013.
(3) It is managed, operated, and controlled by a Single-member called promoter. The liability of its member is limited to the extent of his capital investment in the company. It is superior than Sole Trading Concern of business organisation.
10) Government company
(1) As mentioned in Section 2(45) of the Companies Act, 1956, any company in which not less than 51% of the paid up share capital is held by the Central Government or by any State Government or partly by the Central Government and partly by State Government is known as a government company. A subsidiary company of a government company is also called Government Company.
(2) It is registered under the Indian Companies Act. Bharat Heavy Electricals Ltd, (BHEL), Bharat Electronics Ltd. (BEL), Steel Authority of India Ltd, (SAIL), Oil and Natural Gas Corporation Limited (ONGC Ltd.). Etc. are some examples of government companies.