Concept of Public Company

This article corresponds to section 3(1)(iv) of the Companies Act, 1956. Public company as defined section 271) of the 2013 Act is a company which is not a private company and one which has a minimum paid-up share capital of five lakh rupees or such higher amount as may be prescribed.

The provision to section 2(71) of the 2013 Act clarifies that a private company, which is a subsidiary of a public company, will be deemed to be a public company for the purposes of the 2013 Act, meaning thereby that all provisions of the 2013 Act as applicable to a company will be applicable to that private company. This is notwithstanding the fact that its Articles may continue to contain provisions as a private company.

Companies Act, 1956: Sections 2(37) and 3

Section 3 of Companies Act, 1956

The Companies (Amendment) Act, 2000 altered the concept of public company in two respects.

(1) Clause (IV) of sub-section (1) of s.3 of the 1956 Act was amended to provide that a public company shall have a minimum paid-up share capital of Rs. 5 lakhs or such higher capital as may be prescribed.

(2) It also provided that a private company which is a subsidiary of a public company shall be a public company.

If a company failed to effect the increase in its paid up capital by 12th December, 2002, then it was deemed to be a defunct company under s. 560 of the 1956 Act and its name was liable to be struck off from the register maintained by the Registrar of Companies and once it is struck off on this ground then, its name cannot be restored merely on an undertaking that its share capital would be increased after restoration. This is because there can be no equitable consideration in the face of a statute which creates an express bar for the incorporation or continuance of a company with a paid up share capital below the minimum prescribed by the statute.

Public Company [Section 3(1) (IV) of the Companies Act 1956]

A public company means a company which is not a private company and which has a minimum paid-up capital of five lakhs rupees or more as may be prescribed and an private company which was a subsidiary of another company which is not a private company.

After the commencement of the Companies (Amendment) Act, 2000, a company could not be registered as a public company unless it has a minimum paid-up capital of Rs. 5 lakhs. The effect is that the promoters had to subscribe for shares at least upto the required minimum through subscription clause of the memorandum of association at the time of incorporation as a public company [Clause (iv)(b) of s. 3 of the 1956 Act].

A public company which was unable to raise its paid-up capital to the required level within the period of two years, was free to convert itself into a private company subject, of course, to the fulfillment of the provisions of clause(ii) of sub-section (1) of s. 3 and in accordance with the statutory requirements of the 1956 Act.

Private company which is subsidiary of public company [Section 3(1) (IV) (c) of the Companies Act 1956]

Wherever in the 1956 Act private company is exempted, it is provided that the exemption will apply only in the case of private companies which are not subsidiaries of public companies. The reason for this is that a private company which is subsidiary of a public company is throughout in the 1956 Act put in the same position as a public company. For, where a private company is subsidiary of a public holding company, it is controlled by the latter, and treated as having the characteristics of the holding company itself, enjoying the same privileges and rights and subject to the same restrictions, duties and liabilities. Its interests are the interests of the holding company and its acts are the acts of the holding company. Such a company is now statutorily declared as a public company for all purposes under the 1956 Act in view of s. 3 of the 1956 Act (proviso to s. 2(71) of the 2013 Act).

Where a private company is subsidiary of a private holding company, its position as a private company is not affected in any way. Further if a private company is subsidiary of another private company and the latter is subsidiary of a public company, the first mentioned company will also be subsidiary of a public company.

Present position of private and public companies in England

Under the English Companies Act, 2006 the private company is the residual company form. Every company is a private company unless it meets with the statutory requirements of a public limited company. The name of the public company shall end with the words “public limited company or the abbreviation “plc”. The authorized capital of a public company shall not be less than the prescribed amount which is now £50,000 and that amount shall be fully subscribed. Each of the allotted shares must be paid up at least as to one-quarter of the nominal value and the whole premium. The company must be registered or re-registered as a public company. A private or a public company may be formed with two members and there is no limit on the maximum number of members. A private company must satisfy only one statutory requirement: it must not offer shares or debentures to the public through a prospectus or by offer for sale or in any other manner. A company can be formed by one or more persons subscribing their names to a memorandum of association and complying with the requirements as to registration (section 7 Companies Act, 2006). Such Company may be a private or public company. For Company registration in Madurai, kindly visit our website.