ALL DISTINGUISH BETWEEN (16 Marks)

PRE-INCORPORATION CONTRACTS PROVISIONAL CONTRACTS

A contract entered into by the promoters on Any contract made by a company before the
behalf of a proposed company i.e. before date at which it is entitled to commence
incorporation of a company business
A Pre-Incorporation contract is governed by A Provisional Contract is governed by
Specific Relief Act, 1963. Companies Act, 2013.
The term Pre-Incorporation Contract is relevant The term Provisional Contract is not relevant
for public as well as private company for Private Company
The term Pre-Incorporation Contract is relevant The term Provisional Contract is not relevant
for every company, even though it has no share for a company not having share capital.
capital
A Pre-Incorporation contract is not binding unless A provisional contract becomes binding on
the company adopts the contract. the company when it obtains the certificate
of commencement.

MOA AOA
Fundamental Document (charter) Subordinate Document (internal)
Memorandum prevails over Articles Articles cannot override Memorandum
Memorandum cannot be amended Articles can be amended retrospectively
retrospectively
Every company must have its own A public company limited by shares may adopt
memorandum Table A and in such a case it need not have its
own articles.
Memorandum has 6 clauses The Act has not prescribed any contents of
articles.
Alteration is difficult and length procedures Alteration is relatively easy and do not require
with lots of approvals much approvals.
Any act done beyond Memorandum is Ultra Any act done beyond Articles can be ratified
Vires i.e Void retrospectively by amending articles.

DEBENTURE SHARES
Debenture holders are the creditors of the Shareholders are the owners of the company
company

Debenture holders have no voting right Shareholders have voting rights and hence
control the total affairs of the company

Debenture interest is paid at a predetermined Dividend on shares is payable at a variable rate

fixed rate. It is payable whether there is any which is mainly affected by the profitability of
profit or not. the company.

Interest on debentures is a charge on the Dividends is the appropriation of the profits of

profits of the company and hence deductible the company hence are not deductible as an
as an expense under income tax expense under income tax

In balance sheet, debentures are shown under In balance sheet, shares are shown under share
secured loans capital

Debenture can be converted into shares as Shares cannot be converted into debentures
per the terms of issue. under any circumstances
Debentures cannot be forfeited for non Shares can be forfeited for non payment of
payment of calls money allotment and call money

At the time of liquidation, debenture holders At the time of liquidation, shareholders are paid
are paid off before the shareholders at the last after debenture holders, creditors, etc

Debenture can be issued at a discount, no Shares cannot be issued at a discount as per

such restriction in companies act, 2013 companies act, 2013

Maximum Underwriting commission on Maximum Underwriting commission on Shares

Debentures can be 2.5% of Issue price as per can be 5% of Issue price as per Companies Act,
companies Act, 2013 or As authorised by 2013 or As authorised by Articles whichever is
Articles whichever is less. less.

TRANSFER OF SHARES TRANSMISSION OF SHARES

 Transfer takes place by a voluntary act of  Transmission is the result of the
the transferor. operation of law i. e. death or
insolvency.
 Transfer deed is required.  No instrument of transfer is required.
 Transfer is a normal course of  Transmission takes place on death or
transferring property. insolvency of a shareholder.
 Generally made for some consideration.  No consideration payable.
 Stamp duty is payable by a member.  No stamp duty is payable.

Basis LLP Partnership

Distinctive LLP is a separate legal entity and A partnership firm is not distinct from
therefore, can be sued or it can sue the several persons who compose it.
others
Liability Partners have Limited Liability Partner of a firm would have unlimited
liability.
Dissolution The retirement or death of a partner The death or retirement of a partner
would not dissolve the LLP would dissolve the partnership firm.
Firm’s Property belongs to the LLP and not to The property of the firm is the property
Property the individuals comprising it of the individuals comprising it.
Legality LLP is formed by an incorporation A partnership can be formed either
document and an LLP agreement, thus, orally or by a deed of agreement
giving it a legality whether registered or not.
Max No. of No upper limit has been laid down by the A registered or unregistered partnership
Partners Act cannot have more than 50 partners.
Perpetual The death or insolvency of a shareholder The death or insolvency of a partner
Succession or all of them does not effect the life of dissolves the firm, unless otherwise
the LLP provided.
Capacity A partner of LLP in his separate capacity An individual partner would not be able
as a legal person can do business with to conduct business transaction with
the LLP since the LLP is a separate legal the partnership firm of which he
entity by itself is a partner.

BASIS LLP COMPANY

Incorporation Incorporation Process is reduced into a As compared to LLP, Incorporation
Process simple procedure of filling of the process is complex.
prescribed information in the
 Incorporation document and statement in
Form No. 2.
Agreement In case of LLP, a limited liability In case of a Company, articles of
partnership agreement (LLPA) is prepared. association of a company are
prepared.
Memorandum The memorandum of a LLP is not required The memorandum of a company is
to name the state in which it is required to required to name the state in which
be incorporated. it is required to be incorporated.
Change in The detail procedure involved in changing The detail procedure is required to
Registered the registered office from the state of be followed in case of a company.
office incorporation to another state is not
required to be followed in case of a LLP.
Meeting There is no such stipulation for meeting of Meeting of partners either
partners. periodically or compulsory as
stipulated for directors and
shareholders‟ meetings in the
Companies Act.
Management There is no separation between There is a separation between
& Ownership management of the company and the management of the company and
ownership since all the partners, unlike the ownership.
all the directors, can take part in the day
to day affairs of the LLP.
Authority In an LLP, each partner has the authority In case of a company no individual
to do so unless expressly prohibited by the director can conduct the business
partnership terms. of the company.
Remuneration There are no provisions in the LLP Act for The Companies Act contemplates
remuneration payable to designated regulating the remuneration
partners. payable to directors.
Borrowing Unlike in the case of companies, there are There are restrictions on borrowing
Powers no restrictions on the borrowing powers. powers in case of a company.
Maintenance The LLP can choose to maintain the Whereas under the Companies Act,
of accounts accounts on cash basis/accrual basis. accrual method is compulsory.

BASIS WINDING – UP DISSOLUTION

Basic distinction Winding up is the 1st stage in the Dissolution is the final stage whereby
process whereby assets are realized, the existence of the company is
liabilities are paid off and the surplus, withdrawn by the law.
if any, distributed among its members.
Appointment of The liquidator appointed by the The order for dissolution can be
liquidator company or the Court carries out the passed by the Court only.
winding up proceedings.
Representation The liquidator can represent the Once the Court passes dissolution
by the liquidator company in the process of winding up. orders the liquidator can no longer
This can be done till the order of represent the company.
dissolution is passed by the Court.
Debts to be Creditors can prove their debts in the Creditors cannot prove their claim on
proven by the winding up of a Company. the dissolution of the company.
creditors

BASIS MEMBER’S WINDING – UP CREDITOR’S WINDING – UP

Basic distinction A member‟s voluntary winding up A creditor‟s voluntary winding up is one
results where, before convening the where no such declaration is filed.
 general meeting of the company at
which the resolution of winding up
is to be passed, the majority of the
directors file with the Registrar a
statutory declaration of solvency.
Participation in In a member‟s voluntary winding In a creditors‟ voluntary winding up, the
liquidation up, the creditors do not participate company is deemed to be insolvent and,
directly in the control of the therefore, the control of liquidation
liquidation, as the company is remains in the hands of the creditors.
deemed to be solvent.
Appointment of There is no meeting of creditors in a In a creditors‟ voluntary winding up,
Liquidator members‟ voluntary winding up and meetings of creditors have to be called
the liquidator is appointed by the at the beginning and subsequently the
company. liquidator is appointed by the creditors.
Power of In a members‟ voluntary winding – In a creditors‟ voluntary winding up,
liquidator up the liquidator can exercise some creditors can do so with the sanction of
of his powers with the sanction of a the Court.
special resolution of the company;

BASIS PRIVATE COMPANY PUBLIC COMPANY

Minimum The minimum number of person Minimum number of person required in
number of required to form a public company is a private company is only two.
members seven
Maximum There is no limit on the maximum Private company cannot have more than
number of number of member of a public fifty members excluding past and
members company present employees.
Commencement A public company shall not A private company can commence its
of Business commence its business immediately business as soon as it is incorporated.
unless it has been granted the
certificate of commencement of
business.
Invitation to A public company by issuing a A private company cannot extend such
public prospectus may invite public to invitation to the public.
subscribe to its shares
Transferability There is no restriction on the transferA private company by its articles must
of shares of share restrict the right of members to transfer
the share.
Number of A public company must have at least A private company may have two
Directors three directors directors.
Statutory A public company must hold a In a private company there are no such
Meeting statutory meeting and file with the obligations.
register a statutory report.
Managerial Total managerial remuneration in the These restrictions do not apply to a
Remuneration case of public company cannot private company.
exceed 11% of net profits, but in the
case of inadequacy of profit a
minimum of Rs. 50, 000 can be paid.
Name A public company has to use only the A private company has to use words
word „Limited‟ at the end of its name. „private limited‟ at the end of its name
 BASIS PRIVATE COMPANY OPC
Board of Minimum number of Directors Minimum number of Directors required in a
directors required in a private company is two. private company is One.
Number of To incorporate a private company To incorporate a OPC minimum 1 person is
persons minimum 2 persons are required. required.
required for
Incorporation
Shareholding In a private company minimum The 100% of share capital of OPC is held by
number of members is two, so entire single person.
shareholding cannot held by single
person.
NRI or Private company can be started & Only Indian citizen or Indian national are
Foreign managed by NRI‟s foreign nationals. allowed to start OPC.
nationals
Conversion No such limitation or compulsion of OPC must be mandatorily converted into
limitation conversion. private Company:
 If annual Sales turnover exceeds Rs
2 Crore; or
 Paid up capital exceeds Rs 50 Lakhs.
Name Clause Name of Private Company must end Words “OPC” must be written in Brackets
with the words “Private Limited” below the name of OPC.

BASIS PRIVATE COMPANY PRODUCER COMPANY

Number of The private company can be formed Producer company can be formed by
persons by two members. minimum 10 members.
required for
Incorporation
Name A private company has to use words A producer company has to use words
„private limited‟ at the end of its “Producer Company Limited” at the end of
name its name.
Minimum Minimum number of Directors Minimum number of Directors required in
number of required in a private company is only a producer company is only Five.
directors two.
Tenure of The tenure of directors is not fixed by The tenure of directors is minimum period
directors law of 1 year & maximum 5 years.
1st AGM The first AGM is required to be held The first AGM is required to be held within
within 18 months from the date of 90 days from the date of incorporation.
incorporation.
Notice of the Notice of the meeting should be given Notice of the meeting should be given not
meeting not less than 21 days from the date less than 14 days from the date of meeting.
of meeting.
Share Capital The share capital of private company The share capital of producer company
may be consists of equity, preference consists of equity shares only.
or any “other class”.

BOARD MEETING GENERAL MEETING

Notice Must be sent at least 7 days before the date of Notice Must be sent at least 21 days before
meeting the date of meeting
Quorum is 1/3 Directors or 2 whichever is higher
rd It depends on the number of members of
the company. Public Company : 5 and
Private Company: 2.
Board Meeting is for Directors General Meeting is for members of
company
Minimum 4 Board Meetings in a years should be held AGM: 1
EGM: no such Limit on number of meetings
1st Board meeting should be held within 30 days of 1st AGM shall be held within 9 months of
incorporation incorporation
Gap between two board meeting should not be more Gap between two board meeting should not
than 120 days be more than 15 months
Board meetings can be attended by director through Members cannot attend general meetings
video conferencing through video conferencing

EXECUTIVE DIRECTOR INDEPENDENT DIRECTOR

This is an employee of company This is not an employee of company
ESOPs can be granted to such director ESOPs cannot be granted to such director
They are liable to retire by rotation They are not liable to retire by rotation
They are appointed for one year and can be They can be appointed for 5 years at a time and
reappointed can serve 2 consecutive terms.
They cannot become chairman of various Chairman of committees of board has to be
committees of board independent director
They can have monetary relationship with the They cannot have any monetary relationship
company with the company
No Need to hold a separate meeting of executiveAt least one meeting must be held of
directors only Independent directors only
No minimum number of executive directors Listed: 1/3rd of total director must be
required to be appointed independent directors
Unlisted: at least 2 directors should be
independent directors
Every Company is required to appoint executive Only companies fulfilling certain parameters
directors are required to appoint independent directors

BASIS COMPANY PARTNERSHIP

Registration A company cannot come into existence In a partnership firm registration is
unless it is registered. not compulsory.

Minimum no The minimum number in a public Partnership the minimum number of

of members company is seven and in case of a partners is two.
private companies two.
Maximum no The maximum limit of members in case The maximum limit of partners under
of members of a private company is fifty but in case partnership is 20, while in case of
of public company there is no banking business it is ten.
maximum limit.
Liability In case of joint stock company the In case of partnership the liability of
liability of shareholders is limited partners is unlimited.
(except in case of unlimited companies)
to the extent of face value of shares or
to the extent of guarantee.
Management The affairs of a company are managed Every partner of a firm has a right to
by its directors. Its members have no participate in the management of the
right to take part in the day to day business unless the partnership deed
management provides otherwise.
Legal Status A company has a separate legal status A partnership firm has no legal
distinct from its shareholders. existence distinct from its partners.
Insolvency/ Insolvency or death of a shareholder A partnership ceases to exist if any
Death does not affect the existence of a partner retires, dies or is declared
company. insolvent.

BASIS HUF COMPANY

Registration Not compulsory under any law Compulsory under Company Laws
Membership By virtue of birth By virtue of contract
Authority to Retains with Karta only Company itself has authority to create debt
create debt through its Directors subject to the
provisions if MOA & AOA.
Management Management lies in the hands of Management lies in the hands of Board of
Karta Directors
Liability Karta‟s Liability is unlimited Members liability is limited to the extent of
unpaid amount on shares
Governing HUF is governed by Hindu Law Company is governed by Companies Act,
Law 2013

BASIS EQUITY SHARES PREFERENCE SHARES

Meaning Equity shares are the ordinary Preference shares are the shares that carry
shares of the company preferential rights on the matters of
representing the part ownership of payment of dividend and repayment of
the shareholder in the company. capital.
Payment of The dividend is paid after the Priority in payment of dividend over equity
dividend payment of all liabilities. shareholders.
Repayment In the event of winding up of the In the event of winding up of the company,
of capital company, equity shares are repaid preference shares are repaid before equity
at the end. shares.
Rate of Fluctuating. Depends upon Fixed Rate of dividend
dividend distributable profits
Redemption Equity Shares are always Preference shares are always redeemable.
irredeemable. They are payable Maximum tenor cannot exceed 20 years.
only at the time of liquidation
Voting rights Equity shares carry voting rights. Normally, preference shares do not carry
voting rights. However, in special
circumstances, they get voting rights.
Convertibility Equity shares can never be Preference shares can be converted into
converted. equity shares.
Accumulation Dividend cannot be accumulated Dividend gets accumulated if not paid.
of dividend in any case

AGM EGM
First AGM should be held within 9 months of No such stipulation
incorporation
AGM has to be held at least once in a year No such stipulation
Ordinary business can be conduction in AGM Ordinary business cannot be conducted in
only EGM. Only special business can be
conducted in EGM
Can be held on any day except National Holiday Can be held on any day including National
Holiday
Can be held during business hours only Can be held at any time during the day
If AGM is not held, company and officer be liable No such penalty prescribed under the law
to penalty of upto Rs. 1,00,000 and Rs. 5,000 per
day
AGM cannot be held on requisition by members EGM can be held on requisition by members

ESOP SWEAT EQUITY SHARES

ESOPs are given in the nature of Incentive and Sweat Equity Shares are issued as
retention plan these can be issued to employees consideration for creation or transfer of
and officers. ESOPs cannot be issued to Promoter IPRs to the company or as other value
or person belonging to the promoter group. addition these can be issued to employees,
Officers and Directors of the Company.
These options can be issued with conversion right These shares can be issued at discounted
at a pre-determined price. The issue price can be price or free for know-how and services to
less than the intrinsic value of the shares. the company.
The consideration has to be paid in cash. The consideration can be partly cash and
partly IPRs/value addition or fully non-
cash consideration.
These are generally issued based on a scheme to These are mainly intended to be issued to
be formulated by the company stipulating the build up equity for directors or promoters
eligibility criteria such as number of years of with technical capability but with meager
services, employee grade etc. financial resources.
Lock-In period is not specified for the ESOP. These Shares have compulsory Lock-In
Period of 3 years.
No Pricing guidelines are defined. Pricing Guidelines are defined for Sweat
Equity Shares.
There is no separate register required to be A separate register of Sweat Equity Share
maintained. issued has to be maintained.
Sweat Equity shares cannot be issued by Unlisted There is no such restriction on ESOP.
Public Company more than 15% without the
approval of Central Government.

INTERIM DIVIDEND FINAL DIVIDEND

This dividend is paid before the finalization of This dividend is paid after the finalisation
accounts of the year of account of the year
This dividend is declared by Board of Directors This dividend is recommended by BOD but
approved by Shareholders in General
meeting
Can be revoked with the consent of all the Cannot be revoked in any circumstances
shareholders
Not defined under companies act Defined under companies act
Rate of interim dividend is always less than the Rate of final dividend is always higher than
rate of final dividend interim dividend
 POINTS INFORMATIONAL SERVICES APPROVAL SERVICES
Meanings Informational service cover those MCA, Regional Directors & ROCs are
forms, which are to be filed with ROC empowered to accord approval, or to give
for informational purposes, in any direction in relation to the certain
compliance with the provisions of the matters. Such services are known as
Companies Act, 2013. approval services.

Example Forms relating to following ROC approval is required in following

informational services are required to cases:
be filed: (a) Extension of time period for holding
(a) Consent and withdrawal of consent AGM
of persons charged as officers in (b) Holding AGM at place other than
default registered address
(b) Voluntary Reporting of Corporate (c) Declaring of company as defunct
Social Responsibility (CSR) (d) Extension of the period of annual
(c) Resolutions and agreements accounts
(d) Notice of address of place where (e) Amalgamation of companies
books of account are kept (f) Compounding of offences
(e) Information in relation to any offer
of scheme or contract involving the
transfer of shares or any class of
shares in the transferor company to
the transferee company
(f) Order received from Court or
Tribunal

BASIS MOTION RESOLUTION

Meaning Motion is a proposal submitted for a A resolution is the formal
discussion and a decision adopted by expression of the decision of the
means of a resolution. A motion becomes a meeting when a motion has been
resolution only after the requisite majority duly voted and passed by the
of members have adopted it. requisite majority.

Official decision Every motion is not the official decision of A resolution once adopted and
the company recorded in the minutes becomes
the official decision of the company.

Significance in In case of company meetings, only such A resolution relates to only such
meeting motions are proposed as are covered by matters that are covered in notice of
the agenda. However, certain motions may the meeting. No resolution can be
arise out of the discussion and the passed in respect of matters which
standing orders are not covered in notice of the
of various bodies allow such motions to be meeting.
discussed at the meeting without proper
notice in writing.

BASIS RESERVE CAPITAL CAPITAL RESERVE

Meaning Reserve capital is that part of the uncalled Capital reserves are created out of
capital of a company which the limited capital profit. Capital reserve may
company has decided by special be statutory capital reserve or non
resolution not to call except in the event statutory capital reserve.
and for the purpose of the company being
wound up.
Mandatory Creation of reserve capital is not Creation of capital reserve is
mandatory. mandatory in certain cases.
Balance Sheet There is no need to disclose reserve capital Capital reserves are disclosed in
disclosure in balance sheet. balance sheet under the head
"Reserve & Surplus”
Writing off Reserve capital cannot be used to write-off Capital reserve can be used to write
losses capital losses. off capital losses.

BASIS MORTGAGE CHARGE

Mode of creation A mortgage is created by Acts of the A charge may be created through
parties Act of parties or by operation of Law
Registration A Mortgage requires registration under A charge by operation of Law does
TOPA, 1882 not require registration but Charge
created by act of parties requires
registration
Term A Mortgage is for a fixed term A Charge may be in perpetuity
Effect A Mortgage is a transfer of an interest in A charge only gives a right to receive
specific immovable property payment out of a particular property

SMALL COMPANY VS. INACTIVE COMPANY:

Small 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; AND
(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

Inactive Company:
“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;