CHAPTER 2 CLASSIFICATION OF COMPANIES
At the end of this chapter the students should be able to:
Explain how a company can be classified. Explain the meaning and criteria of each type of company
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Definition of Company 1.
2.
3.
4.
Oxford English Dictionary - a company is a “body of persons combined for a common(especially commercial) object”. S 2 of the CA 2016- “company means a company incorporated under this act or under any corresponding previous written law”. Lord Justice Lindley - Company is “an association of many persons who contribute money or money worth to a common stock and employed for a common purpose”. Chief Justice Marshall(USA) - “Company is a person artificial, invisible, intangible and existing only in the contemplation of the law”
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Types of Corporate Bodies
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Types of Companies According to the liability of members Co limited by share Co limited by guarantee
Unlimited Co
According to public status
Private Co
Public Co
According to relation with other co
According to place of incorporation
Holding Co
Local company
Subsidiary Co Related Co
Foreign company
Wholly owned subsidiary 5
Company Ltd by Share ( s10(2) the liability of its members to contribute to the company’s assets is limited to the amount, if any, unpaid on his shares. Once the shares are fully paid , no further liability to contribute to discharge the company’s debts.
Company Ltd by Guarantee(s10 (3)) the liability of its members to
contribute to the company’s assets is limited to such amount as the members undertake to contribute in the event of winding up Only in the event of the company being wound up. Shall only be a public company( s11(2) has no share capital (s12)
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Unlimited Company (s10(4) No limit on the liability of
its members in a winding up for the debts of the company. s11(3) – shall either be a
private company or public company
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Private and Public Co Private Company S2- classified as a private co as: • Any company which immediately prior to commencement of this Act was a private company under any corresponding previous written law • any incorporated as a private company under this Act or under s41 • being a company which has not ceased to be a private company under s42
Characteristics of a private company Restrict the right to transfer of its shares (s 42(2)) Limit to no more than 50 members (s 42(1)) Prohibit any invitation or offer to the public to subscribe share or debenture of the company (s 43(1) (a) Prohibit any invitation or offer to the public to deposit money with the company for fixed period or payable at call. (s 43(1)(c) It must have share capital (s42(1)) 8
Public Company S2 – a company other than a private company. •
Characteristics of a Public Company No restriction on the right to transfer share Unlimited number of members No prohibition to invite public to subscribe share or debenture No prohibition to invite public to deposit money It can be a company limited by share or guarantee, or it can be an unlimited company
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Exempt Private Company is a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation. All shareholders are individual person and not corporate body. Not more than 20 members. Is not required to lodge their financial statements and report with the Registrar for the information of the public. Only need to lodge a certificate signed by the director, the secretary and auditor of the company that the company is able to meet its liabilities as and when the liabilities fall due. Not prohibited by s 224 from making loan to its directors. Not prohibited by s225 form making loans to any person connected with its director. 10
Holding and subsidiary company X Bhd Holding co
S5 Ultimate holding co
• X Bhd. controls the composition of the Board directors of D. • X Bhd. Control > 50% of the voting power. • X Bhd. Control > 50% of the shares
Y Bhd Subsidiary co/ holding co
Z Bhd Subs co
ZZ Bhd Subs co 11
Wholly owned subsidiary S6 – a corporation is a wholly owned subsidiary if none of its members is a person other than: a. its holding co or b. a nominee of its holding co c. another wholly owned subs of the holding co, or d. nominee of such wholly owned subsidiary.
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3 Wholly owned owned Wholly subs subs
1 Holding co co Holding
4 nominee nominee
2 Nominee of of Nominee the holding holding co co the
Wholly owned owned Wholly subsidiary subsidiary
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Banking corporation S 2(1) – as a licensed bank, a licensed investment bank, licensed international Islamic bank and an Islamic Bank.
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Borrowing corporation S2(1) – a corporation that is or will be under liability to repay any money received or to be received by it in response to an invitation to the public to subscribe for or purchase debentures of the corporation in accordance with provision of Subdivision 10 of Division 1 of Part III. 15
Guarantor corporation S2(1) – a corporation that has guaranteed or has agreed to guarantee the repayment of any money receive or to be received by the borrowing corporation in response to an invitation to the public to subscribe for or purchase debentures of the borrowing corporation 16