UNIT I: INTRODUCTION

Q-1 National Company Law Tribunal

CONSTITUTION
 Section 408 provides that the central government shall by notification constitute the NCLT.
 NCLT is a quasi-judicial body that adjudicates issues relating to companies in India.
 It was established under The Companies Act, 2013 and was constituted on 1st June 2016.
 Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal.
 The NCLT consists of a President and Judicial members and Technical members.

QUALIFICATION
 President of NCLT: a person who is or has been a judge of a high court for five years.
 Judicial member:
1) is, or has been, a judge of a high court;
2) is, or has been, a district judge for at least 5 years,
3) has, for at least 10 years, been an advocate of a court.
 Technical member:
1) has, for at least 15 years been a member of the Indian corporate law service or Indian legal
service and has been holding the rank of secretary or additional secretary to the government
of India;
2) is, or has been in practise as a chartered accountant for at least 15 years;
3) is, or has been in practise as a cost accountant for at least 15 years;
4) is, or has been in practise as a company secretary for at least 15 years;
5) is a person of proven ability, integrity and standing having special knowledge and experience
of not less than 15 years, in law, industrial finance, industrial management, investment,
accountancy or such other disciplines related to management.

SELECTION
 The president of the tribunal shall be appointed by the Central Government after consultation with
the CJI, and the members of the tribunal shall be appointed on the recommendation of a selection
committee.
 The selection committee shall now comprise only of four members namely, CJI or his nominee; a
Senior Judge of the Supreme Court or a Chief Justice of High court; Secretary in the MCA;
and Secretary in the Ministry of Law and Justice.
 In case of equality of votes in a meeting of the selection committee the chairperson (CJI) shall have a
casting vote.

TERM OF OFFICE
 The president and members of NCLT shall be appointed for a term of 5 years but will be eligible for
reappointment for another term of 5 years.
 A member of the tribunal should not be less than 50 years of age and shall hold office in the case of
the President till he attains the age of 67 years and in the case of any other member till he attains
the age of 65 years.

BENCHES OF TRIBUNAL:
 The benches to be constituted by the president of the tribunal will comprise of 2 members out of
which one shall be a judicial member and the other shall be a technical member.
 The principal bench is located at New Delhi and it is presided over by the President of the
Tribunal.
  Every bench or special bench shall be presided over by a judicial member.
ORDER OF THE TRIBUNAL
 The Tribunal may, after giving the parties an opportunity of being heard, pass such orders as it thinks
fit. It can also, at any time within two years from the date of the order, rectify any mistake and make
amendment in the order passed by it if the mistake is brought to its notice by the parties.

Q-2 Body Corporate v. Company

The term body corporate (Section 2(11)) means:
1) Body which has been incorporated under a special statute,
2) Has perpetual succession,
3) Common seal (optional) and
4) An entity distinct from its members

The term body corporate is much wider in concept than the word company because it includes:
1) Companies formed and registered under the Companies Act of 2013.
2) Companies incorporated outside India.
3) Corporations formed under special act of Parliament or of foreign country.
4) Public financial institutions.
5) Nationalised banks under Banking Companies Act, 1970.
6) LLP registered under the LLP Act 2008.
7) LLP incorporated outside India.

The term body corporate does not include:

1) Corporation sole
2) Cooperative society registered under any law relating to cooperative societies.
3) A society registered under the Societies Registration Act, 1860 for example, societies not
engaged in trade and business.
4) Any other body corporate which the central government may by notification specify in this
behalf.

Q-3 Features of a Company

1) Incorporated association: The company comes to life only when it receives the certificate of
incorporation. If there are more than 50 members in the case of any association or partnership, then
they must be compulsorily registered otherwise they will be termed as illegal association.

2) Independent corporate existence: The separate legal entity of a company forms the bedrock of the
company law. Being a mere creation of law, it possesses only those properties which the charter of its
creation confers upon it. The company is a person different altogether from the subscribers to the
MOA. Its personality is distinct and separate from the personality of those who compose it. This is
known as the corporate veil. Since the company is separate and distinct from its members it can:
a) Sue and be sued in its own name,
b) Own, enjoy and transfer property in its own name,
c) The company’s creditors are the creditors of the company alone and cannot proceed against
any of its members,
d) No member has any rights in the assets owned by the company during its existence or on its
winding up.
 Salomon v. Salomon & Co.
S incorporated a company and sold his business to it for 39,000 pounds. The company comprised of
himself, his wife, his daughter and his four sons. The purchase consideration was paid to him by
payment of 9000 in cash, 20,000 shares and 10,000 debentures. The debentures had a floating charge
over the assets of the company in general. One year later the company became insolvent and was
wound up. The unsecured creditors claimed priority of payment saying that Salomon & Co. was one
and the same thing as Salomon. It was held that the existence of a company is quite independent and
distinct from its members and the company’s assets must be first applied to payback Salomon who
was a secured debenture holder.
 Abdul Haque v. Das Mal
The plaintiff sued for wages the Secretary and Managing Director of the company, and not the
company itself. It was held that, since the company was a separate entity from its members, the suit
to recover salary or wages due from a company lies against the company and not against the
directors or members of the company.
 Lee v. Lee Air Farming Limited
Lee held £2999 worth of share capital of the £3000 share capital of Lee Air Farming Ltd. He was the
managing director and chief pilot of the company appointed on a salary. Lee died in an air crash. His
widow claimed compensation for the death of her husband in the course of employment. It was held
that Lee was a separate person from the company he formed and compensation was payable.
 People’s Pleasure Park v. Rohelder
The Articles of a company contained a clause that the title to the land should never pass to coloured
persons. The land was sold to a company comprising exclusively of negroes. The vendor called for
the annulment of the transfer. It was held that the corporation was distinct from its members and that
the transfer was valid.

3) Separate property: A company is capable of owning enjoying and disposing of property in its own
name. The shareholders are not the private or joint owners of the company’s property. A member
does not even have an insurable interest in the property of the company.
 Macaura v. Northern Assurance Co. Limited
M was the holder of nearly all shares of a timber company. He was also a major creditor. M insured
the company’s timber in his own name. The timber was lost in a fire. M claimed insurance
compensation. It was held that the insurance company was not liable to him as no shareholder has
any right to any item of property owned by the company for, he has no legal or equitable interest in
them.

4) Perpetual succession: It is an artificial person created by law. Law alone can bring an end to its life.
Its existence is not affected by the death or insolvency of its members. Members may come and
members may go, but the company continues its operations unless it is wound up.

5) Artificial legal person: Company is a person created by a process other than natural birth. Its
existence as a person is obtained through the process of incorporation. It is known as artificial
juridical personality.

6) Limited liability: The liability of its members is limited to the unpaid amount on the shares that they
are holding plus the premium they had agreed to pay. If the company is a company limited by
guarantee, then the liability of the members extends to the amount each one has guaranteed to pay in
the event of the winding up of the company.
 Section 3A: If at any time the number of members of a company is reduced below the minimum
prescribed (below 7 for public and below 2 for private), and the company carries on business for
more than 6 months while the number of members is so reduced, then every person who is a member
of the company during that time shall be severely liable for the payment of the whole debts of the
company contracted after those 6 months and may be severally sued, provided he was aware of the
reduced membership.

7) Transferability of shares: Shares, debentures or other interest of any member in a company shall be
movable property, transferable in the manner provided for, by the Articles of the company. In the
case of private companies, certain restrictions are placed on the right of its members to transfer
shares.

8) Common seal: Common seal is the official signature of a company, which is affixed by the officers
and employees of the company on its every document. The Companies (Amendment) Act, 2015 has
made the common seal optional. In case a company does not have a common seal, the authorization
shall be made by two directors or by a director and the Company Secretary, wherever the company
has appointed a Company Secretary.

Q-4 Illegal Association

Section 464 provides that no association or partnership consisting of more than 50 persons shall be formed,
unless it is registered as a company under the Companies Act or is formed under any law for the time being
in force. Every member or association carrying on business in contravention of this section, shall be
punishable with fine which may extend to Rs 1 lakh and shall also be personally liable for all liabilities
incurred in such business.
For Section 464 to be applicable the following conditions should be fulfilled:
1) There must be an association or partnership and its membership should exceed 50.
2) The association must be formed for the purpose of carrying on a business.
3) The association must be formed for the purpose of carrying on a business with the inherent
objective of acquisition of gain for its members.
4) The association must not have been registered as a company under the Companies Act nor
must it have been formed in pursuance of some other Indian law.

Section 464 does not apply to the following:

1) Joint Hindu family: But when 2 Joint Hindu families former partnership, then all adults of both
joint families will be counted for the purpose of determining the number of members.
2) An association or partnership if it is formed by professionals who are governed by special acts.
3) Foreign Companies.
4) Charitable Institutions.
5) Literary/Scientific/Religious association and clubs.
6) Chit funds.
7) Stock exchanges.
8) Common fund formed by trustees for investment in certain securities.

Effects of an illegal association:

1) No legal existence:
a) Cannot enter into a binding contract.
b) Cannot sue or be sued by any member or outsider.
c) Cannot be wound up under the act.
d) Cannot be dissolved by the court because the law does not recognise its very existence.
e) Contracts prior to registration cannot be validated and sued upon by subsequent registration.
 f) An illegal association remains illegal in spite of the subsequent reduction in its membership
till it gets registered.
2) Unlimited personal liability of members
3) Penalty: A fine which may extend to Rs 1 lakh for every member.
4) Penalty for improper use of the words limited and private limited: Persons responsible for such
usage shall be punishable with a fine which shall not be less than 500 but may extend to 2000 for
every day upon which that name has been used. Such persons shall be personally liable to an
unlimited extent for all debts incurred in the business.
5) The profit made by an illegal association is, however, liable to income tax.

Q-5 Lifting of the Corporate Veil

The term corporate veil refers to the concept that a company’s members are shielded from liability
connected to the company’s actions. The corporate veil is said to be lifted when the court ignores the
company and concerns itself directly with the members or managers.

STATUTORY PROVISIONS: the separate entity of the company remains, but directors and members are
held personally liable for the acts of the company.
1) Membership falling below statutory minimum: Section 3A If at any time the number of members
of a company is reduced below the minimum prescribed (below 7 for public and below 2 for private),
and the company carries on business for more than 6 months while the number of members is so
reduced, then every person who is a member of the company during that time shall be severely liable
for the payment of the whole debts of the company contracted after those 6 months and may be
severally sued, provided he was aware of the reduced membership.
2) Misrepresentation in prospectus: Every promoter, director or any other person who authorises the
issue of such a prospectus shall be liable to the investors who bought the shares on the faith of the
untrue statement under Section 35. These persons shall also be criminally liable under Section 34
and punishable under Section 447.
3) Failure to return application money: The money should be repaid within 15 days of the close of
the issue and if the amount is not repaid, then directors will be jointly and severely liable to pay the
money along with the interest, at the rate of 15% p.a.
4) For facilitating the task of an inspector appointed: To investigate the affairs of a company, for
alleged fraud, oppression or mismanagement.
5) Investigation of ownership of company: To find out the identity of the people who are financially
controlling the company.
6) Fraudulent conduct of business: If it appears that at any time of the business, the company has
been carried on with intent to defraud creditors or any other person, or for any fraudulent purpose,
those who were knowingly part to such conduct of business may be made personally liable for all or
any of the debts of the company.
7) Directors with unlimited liability: When the directors, through a written agreement, agree to have
their liability made unlimited, they become personally liable for all the debts of the company.
8) Liability of promoters for pre incorporation contracts: Promoters remain liable on those contracts
which are not adopted by the company after its incorporation.
9) Ultravires acts: Directors are personally liable for all acts which are ultravires the Company, the
Directors and those in the nature of Torts.

JUDICIAL INTERPRETATIONS: The separate entity of the company is ignored, and the façade of the
corporate personality is removed to identify the persons who are really guilty.
1) For determination of the character of the company:
 Daimler Co. Ltd. v. Continental Tyre and Rubber, Co.
A company was incorporated in London for the purpose of selling tyres manufactured in Germany,
by a German company. On declaration of war between England and Germany, it was held that since
 both the decision-making bodies were German, the company was a German company and hence an
enemy company. The veil was lifted because there was danger to public interest.

2) For the benefit of revenue: The court will ignore the separate entity of the company if it is formed
solely for the purpose of evading income tax.
 Sir Dinshaw Maneckjee Petit
Dinshaw formed 4 private companies and transferred his investments to each of these companies in
exchange for their shares. The dividend and interest income received by the company was handed
back to Sir Dinshaw as a pretended loan. It was held that the company was formed purely and simply
as a means of avoiding tax and the company was nothing more than Dinshaw himself.

3) Fraud or improper conduct: The court will refuse to uphold the separate existence of the company
where it seems to have been formed to defeat or circumvent law, to defraud creditors or to avoid
legal obligations.
 Gilford Motor Co. v. Horne
Horne was employed on the condition that he would not solicit customers of the company or
compete with for certain period of time after leaving employment. On leaving employment he
formed a company consisting of his wife and an employee of the company, and started carrying on
competing business. His company sent out circular to the customers of his former employer to solicit
them. An injunction was granted against Horne and his company, restraining them from soliciting the
plaintiff’s customers.
 Jones v. Lipman
Lipman had a contract to sell his land to Jones. He subsequently changed his mind and sold the land
to a company which he formed consisting of himself and the clerk of his solicitor for a nominal
capital of 100 pounds. Jones sued Lipman for specific performance.

4) To avoid a welfare legislation: If a subsidiary is formed to avoid a welfare legislation, it may lose
its individuality in favour of its holding company.
5) Formation of subsidiaries to act as agents: Even though a parent and its subsidiary are distinct
legal entities, it may lose its individuality in favour of its parent company if the subsidiary is formed
to circumvent law. The principle will be held liable for the acts of that company.
6) Where the company is a sham or cloak
7) Where the company is used for some illegal or improper purpose
8) In case of economic offences: A court is entitled to lift the veil of corporate entity and pay regard to
the economic realities behind the legal façade.
9) For determination of technical competence of the company: In respect of joint venture
companies, the experience of the companies would include the experience of the constituents of the
joint venture as well. Therefore, lifting of the corporate veil is necessary for the purpose of
considering whether a company has the requisite experience as required by the tender document.

Q-6 Private Company

 Section 2(68) Private Company means a company having a minimum paid up share capital as may
be prescribed, and which by its articles-
1) restricts the right to transfer its shares.
2) except in the case of OPC, limits the number of its members to 200.
3) prohibits any invitation to the public to subscribe for any securities of the company.
 Restrictions on the transferability of shares: It is a closed corporation. The purpose of restriction
is to prohibit a member from transferring his shares to an any outsiders unless or until first offered to
continuing members either at par or at a fair value.
  Restriction on number of members: A private company cannot have more than 200 members
(employees and ex-employees are not included). The minimum number of persons needed to form a
private company is 2, and its name must end with the words Private Limited or abbreviation thereof.
If the membership of a private company falls below 2, the company and every officer in default shall
be fined up to Rs 10,000 and where the contravention continues with a further fine of Rs 1000 per
day subject to a maximum of Rs 2 lakhs in case of a company and Rs 50,000 in case of an officer
who is in default or any other person.
 Prohibition to make public offer: A private company must not make a public issue or publish any
advertisement inviting investments in its securities.

Q-7 Public Company

 Section 2(71) Public company means a company which:
1) is not a private company; and
2) has a minimum paid up capital as may be prescribed.
 A private company which is a subsidiary of a public company shall be deemed to be a public
company, regardless of its status as private company.

Q-8 Small Company

 A small company is a private company. Section 2(85) defines small company as a company, other
than a public company:
1) Paid up share capital of which does not exceed Rs 4 crore or such higher amount as may
be prescribed, which shall not be more than 10 crores;
2) Turnover of which as per its latest P&L account does not exceed 40 crores or such
higher amount as may be prescribed, which shall not be more than 100 crores.
 The following companies are not treated as a small company:
1) A holding company or a subsidiary company.
2) A company registered under section 8.
3) A company or body corporate governed by any special act.
 Advantages to small companies:
1) A small company is not required to prepare statement of cash flows.
2) A small company which is also private company will enjoy all the privileges of a private
company.
3) Annual return of a small company is signed by the company secretary. In case there is
no CS, it is signed by a director.
4) An auditor of small companies is not required to report on the adequacy of the internal
financial controls and its operating effectiveness in the auditor’s report.
5) A small company is not required to rotate auditor and audit firm every 5 years.
6) A small company shall only conduct 1 meeting of the BOD every half year and the gap
between two meetings should not be less than 90 days.

Q-9 One Person Company

Section 2(62) One Person Company means a company which has only one person as a member.
1) An OPC is incorporated as a private limited company.
2) An OPC can be formed only as a private company.
3) An OPC can be formed either as- company limited by guarantee; or company limited by shares.
4) The word one person company shall be mentioned in brackets below the name of such company,
wherever its name is printed, affixed or engraved.
5) It shall have memorandum as per Table A of Schedule I.
 6) Rule 3 of Companies Rules, 2014 provides that:
a) OPC cannot be formed to carry out Non-Banking Financial Investment activities.
b) OPC cannot be incorporated as Section 8 Company nor can it be converted into a
section 8 company.
c) A natural person who is citizen, shall not be a member of more than one OPC at any
point of time and the said person shall not be nominee of more than one OPC.
d) No minor shall become member or nominee of OPC, or hold beneficial interest in the
shares of OPC.
e) Conversion of OPC into a public company or a private company shall be permitted
anytime.
7) A natural person who is a citizen of India, whether resident in India or not, shall be eligible to
become nominee of one OPC. The name of person nominated shall be mentioned in the
memorandum. The registrar shall be intimidated about cessation of previous nominee and the new
nomination by the company within 30 days of change in membership.
8) If OPC or any officer of such company contravenes the rules with respect to OPC, then OPC or any
of its officers shall be punishable, with a fine up to Rs 5000, and a further fine of Rs 500 for every
day of default.
9) An OPC enjoys the following exemptions:
a) An OPC is not required to prepare statement of cash flows.
b) An OPC is not required to rotate auditors.
c) The annual return of OPC is to be signed by the company secretary. In case there is no
CS, the annual report can be signed by the director of the company.
d) An OPC is exempt from holding the Annual General Meetings.
e) An OPC is required to have at least 1 meeting of the BOD in each half of a calendar
year and the gap between the 2 meetings should not be less than 90 days. This shall not
apply to an OPC in which there is only one director on its board.

Q-10 Section 8 Company

 Section 8 permits a limited liability company to be registered, without using the words limited
or private limited in its name, under a special licence granted by the central government,
provided it is a company formed not for profit.
 Conditions to be satisfied for grant of licence: central government may issue such licence if it is
satisfied that the following conditions have been met-
1) Company has in its objects promotion of Commerce, Art, Science, Sports, Education,
Social Welfare, Charity or any such other object.
2) It intends to apply its profits, if any, or other income, for the promotion of the objects
for which it is formed.
3) It prohibits payment of any dividend to its members.
A firm can become a member of a company registered under this section.
An existing company may also apply for a licence to be registered as a section 8 company, provided
it has been formed for any of the objects specified.

 Revocation of Licence: If any company contravenes any requirements of this section or any
conditions subject to which the licence has been granted, or if the affairs of the company are
conducted fraudulently or in a manner prejudicial to public interest or are violative of the objects of
the company then the central government, may by order, after giving it a reasonable opportunity of
being heard,
1) Revoke the licence and direct it to convert its status and change its name by adding the
word limited/private limited as the case may be.
 2) Direct the company to be wound up under this act if it is satisfied that it is essential to
do so in Public Interest.
3) Direct the company to be amalgamated with another company registered under this
section and having similar objects, so as to form a single company, if it is satisfied that it
is essential to do so in public interest.

 Default in complying with section 8 requirements:

1) The company shall be fined in the range of Rs 10 lakhs to 1 crore and its directors and
officers in default will be punishable with fine ranging from Rs 25,000 to 25 lakhs.
2) If it is proved that the affairs of the company were conducted fraudulently then every officer
in default shall be punishable with imprisonment from 6 months to 10 years, and a fine
which will not be less than the amount involved in the fraud but may extend to 3 times the
amount involved in the fraud, if the amount of fraud is more than Rs 10 lakhs or 1% of the
turnover of the company whichever is lower.
3) If it is less than 10 lakhs or 1% of the turnover, whichever is less, and not against public
interest then imprisonment up to 5 years or fine up to Rs 50 lakhs or both shall be imposed.

 Conversion of a Section 8 company:

1) Passing a special resolution.
2) Seeking approval of the regional director.
3) Issuing public notice.
4) Obtaining approval of the regional director.
5) Applying to the registrar for conversion by filing copy of regional director’s approval,
altered e-memorandum and e-articles and declaration by the directors that all
conditions imposed by RD have been met.
6) Intimating the Registrar of revocation of Licence under section 8 and applying to
convert its status and change of name.

Q-11 Dormant Company

 A dormant company means a company which is not active. It is a company which is formed for a
future project or to hold an asset or an intellectual property without there being any significant
accounting transaction.
 Any company which has not been doing business for the last 2 financial years or any company doing
regular business but which has failed to file its financial statements and annual returns in the last 2
financial years, is construed to be dormant company.
 The company should make a decision to revert to an active status within 5 years or the Registrar will
be empowered to strike out its name from its records.
 A company can apply for a dormant company status by making the necessary application in this
behalf.
 The company shall continue to have minimum number of directors (3 in case of a public company
and 2 in case of a private company and 1 in case of a one person company).
 Rotation of auditors shall not apply to a dormant company.
 A dormant company shall file an annual ‘return of dormant company’ which indicates the financial
position of the company and which shall be duly audited by a CA in practise. This should be filed
within 30 days from the end of each financial year.
 A dormant company shall continue to file its return of allotment or change in directorship if such
events occur.
 A dormant company should hold 2 board meetings in a financial year (1 in each half) and the gap
between 2 board meetings should not be less than 90 days.
 The dormant company can revert to an active status company by making another application in the
prescribed form along with the requisite fee.
  Where the Registrar has a doubt that a dormant company has been indulging in business activities
and in fact it is not dormant, then he can take necessary action to revert its status to an active
company.

Q-12 One Man Company

 One man company is a colloquial term used to denote a company in which 1 man holds virtually all
the shares of the company, with other members merely holding token shares in order to fulfil the
statutory requirement of having at least 2 (in case of a private company) or 7 (in case of a public
company) members.
 Being the largest holder, such a person is generally the managing director of the company and enjoys
complete control over it.
 However, this does not mean that a one man company loses its separate identity.

Q-13 Foreign Company

As per Section 2(42) a foreign company means any company or body corporate incorporated outside India,
which-
 has a place of business in India whether by itself or through an agency, physically or through
electronic mode, and
 conducts any business activity in India in any other manner.

The following must be delivered to the Registrar by foreign companies within 30 days of establishing the
place of business:
1) A certified copy of the charter, statutes, or memorandum and articles of the company.
2) The full address of the registered or principal office of the company.
3) A list of the directors and secretary of the company containing his name in full, usual
residential address, nationality of origin, business and particulars of other directorships held
by him.
4) The names and addresses of persons resident in India, authorised to accept on behalf of the
company notices or other documents served.
5) The full address of the office in India which is deemed to be its principal place of business in
India.
6) Declaration that none of the directors of the company have ever been convicted or debarred
from formation of companies and management in India or abroad.
7) Any other information as may be prescribed.

A foreign company is further bound by the following obligations:

1) The company shall in every prospectus state the country in which the companies incorporated.
2) Outside every office or place of business, its name and the country of its incorporation, should be
conspicuously exhibited in English and in 1 local language.
3) The company’s name and the country of its incorporation should be stated legibly in English in all
official publications of the company.
4) Every prospectus, advertisement, official publication must state in legible English, whether the
liability of the members is limited.

Penalties:
 Where a foreign company fails to comply with any of the provisions relating to companies
incorporated outside India, the company shall be punishable with fine which shall not be less than Rs
1 lakh but may extend 3 lakhs with an additional fine of Rs 50,000 for every day during which the
contravention continues.
 Every officer of the company who is in default shall be punishable with a fine ranging from Rs
25,000 to 5 lakhs.
  Liable to be sued in respect of any contract, or transaction it may have entered into, but cannot
institute any legal proceedings in respect of any such contracts, till it has complied with the relevant
provisions of the Act.

Q-14 Producer Company

A producer company is a hybrid between a cooperative society and a private limited company. The name of
the producer company must end with the words producer company limited. A minimum of 10 individuals
must form a producer company. The members of the producer companies have necessarily to be primary
producers i.e. persons engaged in an activity connected with, or related, to primary produce. Primary
produce means produce of farmers or other persons, arising from agriculture of various forms, handloom,
handicrafts, cottage industries or any ancillary activities.
Producer company means a body corporate having objects or activities specified in Section 378B and
registered as producer company under this act or under the Companies Act, 1956.

Objects of a producer company:

1) Production, harvesting, procurement, grading, marketing, selling, export of primary produce.
2) Processing of produce of its members.
3) Manufacture, sale or supply of machinery.
4) Providing education on the mutual assistance principles.
5) Rendering technical services, consultancy services, training, research & development.
6) Generation, transmission and distribution of power.
7) Insurance of producers.
8) Promoting techniques of mutuality and mutual assistance.
9) Welfare measures or facilities for the benefit of members as may be decided by the board.

Formation & Registration:

 The following categories of people or entities will be entitled to form a producer company-
1) Any 10 or more individuals each of whom will be a producer.
2) Any 2 or more producer institutions.
3) A combination of 10 or more individuals and producer institutions.
 Webform SPICe+ will be needed for incorporating a producer company.
 On registration, a producer company shall become a body corporate as if it’s a private limited
company, without any limit to the number of members thereof. Under no circumstance can a
producer company become or be deemed to become a public limited company.
 A producer company so formed shall have the liabilities of its members limited by the memorandum
to the amount unpaid on the shares respectively held by them.

Membership & Voting Rights:

 Where the membership consists solely of individual members, the voting rights shall be based on a
single vote for every member.
 Where the membership consists of producer institutions only, the voting rights of such producer
institutions shall be determined on the basis of their participation in the business of the producer
company in the previous year, as may be specified by articles. During the first year of registration,
the voting rights shall be determined on the basis of the shareholding by such institutions.
 In a case where the membership consists of individuals and producer institutions, the voting rights
shall be computed on the basis of a single vote for every member.
 A producer company may, if so authorised by its articles, restrict the voting rights to active members.
  No person, who has any business interest which is in conflict with business of the producer company,
shall become a member of that company. A member who acquires any business interest in conflict
with the business of the company, shall cease to be a member of that company and be removed.

Basis Producer Company Private Company

Number of Minimum 10 Maximum No limit Minimum 2 Maximum 200
members
Business interest Person with business interest in conflict No such restriction.
of members cannot become member.
Business principal Based on the principle of mutual Based on the principle of acquisition of
assistance. gain.
Return on share Limited return. Return depends upon the profitability of
capital the company.
Share capital Only of equity shares. Can be of any class.
Conversion into Can never be converted into a public Can be converted into a public company.
public company company.
Object Can be formed only for objectives Can be formed for any objective provided
specified in Section 378B. not against the companies act, laws of
land, public policy.
Internal audit Required to keep proper books of Required to keep proper books of account
account and require internal audits to be but internal audit is not compulsory.
carried out by a CA.
Political Cannot make any political contribution. Can contribute to a political party or for a
contribution political purpose.