2
TYPES OF COMPANIES CHAPTER
LIMITED, UNLIMITED & GUARANTEE COMPANIES
Q1. It is always mandatory for an unlimited company to have share capital. Comment. [June 2012 (5 Marks)]
Ans. Unlimited Company [Section 2(92)]: Unlimited company means a company not having any limit on the liability of its members. Thus, the maximum liability of the member of such a company, in the event of its being wound up, might stretch up to the full extent of their assets to meet the obligations of the company by contributing to its assets.
The members of an unlimited company are not liable directly to the creditors of the company. The liability of the members is only towards the company and in the event of its being wound up only the liquidator can ask the members to contribute to the assets of the company which will be used in the discharge of the debts of the company.
An unlimited company may or may not have share capital.
Q2. Mahesh, therefore, wants to sue the members of the company to recover the dues. Advise Mahesh regarding the remedy available to him. [June 2015 (4 Marks)]
Ans. As per Section 2(92) of the Companies Act, 2013, unlimited company means a company not having any limit on the liability of its members. Thus, the maximum liability of the member of such a company, in the event of its being wound up, might stretch up to the full extent of their assets to meet the obligations of the company by contributing to its assets.
The members of an unlimited company are not liable directly to the creditors of the company. The liability of the members is only towards the company and in the event of its being wound up only the liquidator can ask the members to contribute to the assets of the company which will be used in the discharge of the debts of the company.
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PART A : SETTING-UP OF BUSINESS
Thus, Mahesh cannot directly sue the members of the company for recovery of his dues. He can le a claim to the liquidator of the company.
SMALL & ASSOCIATE COMPANY
Q3. San Industries Private Limited Company has its paid-up share capital of ` 3.9 Crore and turnover of ` 45 Crore as per the last audited Balance Sheet. Examining the provisions of the Companies Act, 2013, decide whether the company will be treated as small company. What would be your answer in case the company is governed by any special Act? [June 2017 (5 Marks)]
Ans. Small Company [Section 2(85)]: Small company means a private company,
(
i) Paid-up share capital of which does not exceed ` 4 Crore or such higher amount as may be prescribed which shall not be more than ` 10 Crore and
(ii) Turnover of which as per its last profit and loss account does not exceed ` 40 Crore or such higher amount as may be prescribed which shall not be more than ` 100 Crore.
Nothing in this de nition shall apply to: [This means following companies cannot be small companies]
(
a) Holding or a subsidiary company
(b) Company registered u/s 8
(c) Company or body corporate governed by any Special Act.
San Industries Private Ltd. shall be treated as small company if its ‘paid-up share capital’ is below ` 4 Crore AND ‘turnover’ is below ` 40 Crore.
As per facts given in case, paid-up share capital of the company is ` 3.9 Crore and turnover is ` 45 Crore. It ful ls only one criteria and not both and hence it cannot be treated as small company.
Q4. TP Pvt. Ltd. registered under the Companies Act, 2013 with paid-up capital of ` 3.5 Crore and turnover of ` 42 Crore. Explain the meaning of ‘Small Company’ and examine the following in accordance with the provision of the Companies Act, 2013:
(
(
i) Whether the TP Pvt. Ltd. can avail the status of ‘Small Company’?
ii) Will your answer be different if the turnover of the company is ` 1 Crore? [Dec. 2019 (5 Marks)]
Ans. Small Company [Section 2(85)]: Please refer to answer of Question No. 3.
TP Pvt. Ltd. shall be treated as small company if its ‘paid-up share capital’ is below ` 4 Crore AND ‘turnover’ is below ` 40 Crore.
As per facts given in case, paid-up share capital of the company is ` 3.5 Crore and turnover is ` 42 Crore. It ful ls only one criteria and not both and hence it cannot be treated as small company.
Q5. Distinguish between: Small Company and Inactive Company [June 2016 (4 Marks)]
A Company registered under section 8 can be registered as a Small Company under the provisions of the Companies Act, 2013. Comment. [June 2019 (4 Marks)]
Ans. Small Company [Section 2(85)]: Please refer to answer of Question No. 3.
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 2 financial years or
Which has not filed financial statements and annual returns during the last 2 financial years.
Q6. SDM Private Ltd. is having paid-up share capital of ` 3.5 Crore and annual turnover of ` 38 Crore. It is a wholly owned subsidiary of K Ltd. a listed company. Can SDM Private Ltd. be called a Small Company as per the provisions of the Companies Act, 2013. [Dec. 2022 (4 Marks)]
Ans.: Small Company [Section 2(85)]: Please refer to answer of Question No 3
SDM Private Ltd cannot be treated as small company as holding or subsidiary company cannot be treated as small company even though its paid-up capital does not exceed ` 4 Crore and turnover does not exceed ` 40 Crore.
Q7. (i) Luv Ltd. has entered into a contract with Kush Ltd. by which Kush Ltd. will control 22% of the sale and disposal of the output of Luv Ltd. Enumerate the nature of relationship between both Companies.
(ii) If Surya Pvt. Ltd. having paid-up share capital of ` 45 lakh and annual Turnover of ` 185 lakh is a wholly owned subsidiary of Hima Ltd. a listed Company. Can Surya Pvt. Ltd. be called a Small Company? Explain. [Dec. 2021 (5 Marks)]
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PART A : SETTING-UP OF BUSINESS
Ans. Associate Company [Section 2(6)]: Associate Company in relation to another company, means a company in which that other company has a signi cant in uence, but which is not a subsidiary company of the company having such in uence and includes a joint venture company.
Signi cant In uence: Signi cant In uence means control of at least 20% of total share capital, or of business decisions under an agreement.
Small Company [Section 2(85)]: Please refer to answer of Question No. 3.
Considering above provisions, answer to given case is as follows:
(
i) In the given case, Kush Ltd. controls more than 20% of the sale and disposal of the output of Luv Ltd. Thus Luv Ltd. is the associate of Kush Ltd. But Luv Ltd. neither influences the business decision of Kush Ltd. in any manner nor does it control 20% of the total share capital of Kush Ltd. Hence Kush Ltd. cannot be called an associate of Luv Ltd.
(
ii) Holding or a subsidiary company cannot be treated as small company and thus Surya Pvt. Ltd. cannot be treated as small company as it is subsidiary of another company Hima Ltd.
Q8. Distinguish between: Subsidiary Company & Associate Company [Dec. 2016 (5 Marks)]
Ans. Following are the main points of distinction between subsidiary & associate company:
Points Subsidiary Company Associate Company
Meaning Subsidiary company means a company in which the holding company controls the composition of the Board of Directors or exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies.
Holding of Paid-up capital
Holding company holds more than 50% share capital in subsidiary company.
Control Holding company has major control in subsidiary company.
Section The term ‘subsidiary company’ is de ned in Section 2(87).
Associate company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such in uence and includes a joint venture company.
In associate companies, one company held’s more than 20% but less than 50% of share capital.
In associate companies, one company has only significant in uence over other company but not major control.
The term ‘associate company’ is de ned in Section 2(6).
HOLDING & SUBSIDIARY COMPANIES
Q9. Distinguish between: Holding & Subsidiary Companies [Dec 2010 (4 Marks)]
Ans. Holding and Subsidiary companies are relative terms. A company is a holding company of another if the other is its subsidiary.
Holding Company [Section 2(46)]: Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.
Subsidiary Company [Section 2(87)]: Subsidiary company in relation to any other company (that is to say the holding company), means a company in which the holding company –
(
a) Controls the composition of the Board of Directors or
(
b) Exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies. However, prescribed class or classes of holding companies shall not have layers of subsidiaries beyond the prescribed limit.
The composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors
Q10. The paid-up share capital of PKA India Pvt. Ltd. is ` 20 Crore, consisting of 150 lakh fully paid-up Equity Shares of ` 10 each and 50 lakh fully paid-up Cumulative Preference shares of ` 10 each. PKA India Capital Pvt. Ltd. and PKA Tele Services Pvt. Ltd. are holding 55 lakh and 25 lakh Equity Shares respectively in PKA India Pvt. Ltd.
PKA India Capital Ltd. and PKA India Tele Services Pvt. Ltd. are subsidiaries of Lord Krishna Pvt. Ltd.
(1) Referring to the provisions of the Companies Act, 2013 examine whether PKA India Pvt. Ltd. is a subsidiary of Lord Krishna Pvt. Ltd.?
(2) Would your answer be different if Lord Krishna Pvt. Ltd. has five out of total seven directors on the Board of Directors of PKA India Pvt. Ltd.? [June 2019 (5 Marks)]
Ans.
(1) Holding and Subsidiary companies are relative terms. A company is a holding company of another if the other is its subsidiary.
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PART A : SETTING-UP OF BUSINESS
Holding Company [Section 2(46)]: Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.
Subsidiary Company [Section 2(87)]: Subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company –
(
i) Controls the composition of the Board of Directors or
(ii) Exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies.
Total Voting Power [Section 2(89)]: Total voting power in relation to any matter means the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes.
The total equity share capital of PKA India Pvt. Ltd. is ` 1500 Lakh and in absence of any specific condition in the problem, it may be presumed that the all equity share of PKA India Pvt. Ltd. is carrying equal voting rights.
The PKA India Capital Pvt. Ltd. holds ` 550 Lakh in PKA India Pvt. Ltd. and PKA India Tele Services Pvt. Ltd. holds ` 250 Lakh in PKA India Pvt. Ltd. And PKA India Capital Pvt. Ltd. and PKA India Tele Services Pvt. Ltd. both are subsidiaries of Lord Krishna Ltd
From the above, it is clear that PKA India Capital Pvt. and PKA India Tele Services Pvt. Ltd. collectively holds 800 lakh equity share capital in PKA India Pvt. Ltd, and both of them are subsidiaries of Lord Krishna Ltd.
Thus, in view of Section 2(87)(ii) of the Companies Act, 2013, it can be said that Lord Krishna Ltd. exercises or controls more than half of the total voting power in PKA India Pvt. Ltd together its subsidiaries viz. PKA India Capital Pvt. Ltd. & PKA India Tele Services Pvt. Ltd. Accordingly, PKA India Pvt. Ltd shall become an indirect subsidiary of Lord Krishna Ltd.
(2) If Lord Krishna Ltd would have right to appoint 5 directors out of total 7 directors in PKA India Pvt. Ltd. then PKA India Pvt. Ltd., becomes direct subsidiary of Lord Krishna Ltd., through controlling the composition of Board of Directors.
PRIVATE COMPANIES
Q11. A private company incorporated under the Companies Act, 2013 may issue debentures to any number of persons and can accept deposit from the public. Comment. [Dec. 2017 (5 Marks)]
Ans. As per Section 2(68) of the Companies Act, 2013, a private company means a company, which has a minimum paid-up capital as may be prescribed, and by its articles:
(
(
a) Restricts the right to transfer its shares.
b) Limits the number of its members to 200 excluding past and present employee
(
c) Prohibits any invitation to the public to subscribe for any securities. Issue of debentures by private company: A private company may issue security to any person (number of persons not exceeding 200).
Acceptance of deposits from members by private company: In terms of provisions of Section 73(2) read with Exemption Noti cation dated 5th June, 2015, a private company may accept from its members monies not exceeding 100% of aggregate of the paid-up share capital and free reserves, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the RBI, accept deposits from its members on such terms and conditions, as may be agreed upon between the company and its members, subject to the ful lment of certain conditions, as provided under the Act.
Q12. Bindu Mediatech Private Ltd. is having paid-up capital of ` 40 lakh, its Securities Premium Account is ` 30 lakh and its free reserves are ` 30 lakh. The company has accepted ` 95 lakh as loans from its members and term loan from a scheduled bank to the extent of ` 75 lakh. State whether the company can accept loans/deposits from its members. Is there any maximum limit up to which the company can accept as loan/deposit from its members? Discuss the applicability of exemptions to the Private Ltd. Company from some of the provisions of Section 73 of the Companies Act, 2013. (Assume the Company has not made any defaults in loan repayments) [Dec. 2019 (5 Marks)]
Ans.
(1) The Company has accepted a term loan from a scheduled bank of ` 75 lakh. However, under Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014, it is an exempted deposit.
2.8 PART A : SETTING-UP OF BUSINESS
(2) MCA has provided certain exemptions to private limited companies for accepting loans/deposits from its members. Accordingly, clause (a) to (e) of Section 73(2) of the Companies Act, 2013 shall not apply to the following private companies:
(
(
i) Which accept money not exceeding 100% of the paid-up capital and free reserves and securities premium.
ii) Start-up company for 5 years from its incorporation.
(iii) A private company which fulfils the following conditions:
(
a) It is not an associate or a subsidiary of any other company.
(b) The borrowing of such company is less than twice of its paidup share capital or ` 50 Crore, whichever is less
(
c) It has not defaulted in repayment of borrowings subsisting at the time of accepting of deposits.
The company referred to in clause (i), (ii) or (iii) above shall file the details of monies accepted to the registrar in such manner as may be specified.
(3) In this case, Bindu Mediatech Private Ltd., is having a paid-up share capital of ` 40 lakh, Free Reserves of ` 30 lakh and Securities Premium of ` 30 lakh.
The company can accept loans up to ` 100 lakh.
Since the company has already accepted ` 95 lakh as loans from its members it can further accept ` 5 lakh from its members as loan/deposits.
PUBLIC COMPANIES
Q13. Distinction between: Public Company & Private Company
Ans. Following are the main points of distinction between public and private company:
Points Public Company Private Company
Meaning The minimum number of persons required to form a public company is 7 and no restriction on maximum number of members.
The minimum requirement is only of 2 persons and the maximum limit is of 200 persons
No. of directors It must have at least 3 directors It must have at least 2 directors
Points Public Company Private Company
Subscription for shares & debenture
A public company can invite the general public to subscribe the shares or debentures of the company.
Transfer of shares Shares of public companies are freely transferable.
Special privileges
Managerial remuneration
There are no special privileges enjoyed by a public company.
In case of public company total managerial remuneration cannot exceed 11% of the net pro ts.
A private company is prohibited by its Articles to subscribe the shares or debentures of the company.
In a private company, transferability of shares is restricted by Articles.
A private company enjoys some special privileges under the Companies Act, 2013.
In case of private company, no such restriction on remuneration applies.
Q14. Masons Pvt. Ltd. is a private limited company as per the Article of Association of the company. However, a public company acquired shares in Masons Pvt. Ltd. thereby making the Masons Pvt. Ltd., a subsidiary of that public company. State the impact of such acquisition of shares by the public company on Masons Pvt. Ltd. [June 2015 (4 Marks)]
Ans. As per Section 2(71) of the Companies Act, 2013, Public Company means a company which –
(
a) is not a private company and
(b) has a minimum paid-up share capital as may be prescribed. However, a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. This means, if private company is subsidiary of public company then it will be treated as public company.
Thus, if a public company acquires shares in Masons Pvt. Ltd making it subsidiary of that public company, the Masons Pvt. Ltd will be treated as public company under the Companies Act, 2013 even though Masons Pvt. Ltd continues to be a private company in its articles.
ONE PERSON COMPANY [OPC]
Q15. One person company shall be formed only as a company limited by shares. Comment. [June 2015 (5 Marks)]
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PART A : SETTING-UP OF BUSINESS
Ans. One Person Company [Section 2(62)]: One Person Company means a company which has only one person as a member.
One Person Company has to be formed as a private company. [Section 3(1)(c)]
Type of OPC [Section 3(2)]: An OPC may be formed either as: Company limited by shares or Company limited by guarantee or Unlimited liability company.
Thus, it is incorrect to say that one person company shall be formed only as a company limited by shares.
Q16. Axar is in plant research and he has invented a process for extracting bio-fuel from certain plants, now he is proposing to commercialize his invention by promoting a One Person Company (OPC). But he proposes his name and his wife name as directors of the Company. As a Company Secretary clarify Axar on number of shareholders and directors OPC can have. Also brief him the provisions on Board, Annual General Meeting, signing of financial statements, Board’s Report and Annual Return. [Dec. 2019 (5 Marks)]
Ans. Following are the provisions of the Companies Act, 2013 relating One Person Company:
(
a) One Person Company: As per Section 2(62), One Person Company means a company which has only one person as a member.
(b) Eligibility to incorporate OPC: A natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company (OPC).
(c) Directors in OPC: As per section 149(1), One Person Company may have more than one director on its Board. But OPC should have only one member. Hence, Axar may incorporate an OPC and he and his wife may be the directors of the company.
(d) Meeting of Board of Directors of OPC: As per section 173(5), it is required to hold at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings should not be less than 90 days.
For OPC having only one director, the provisions of Section 173 [Meetings of the Board] and Section 174 [Quorum for meeting of Board] will not apply.
(
e) No AGM for OPC: As per Section 96(1), OPC need not hold annual general meeting.
CH. 2 : TYPES OF COMPANIES 2.11
(f) Annual return of OPC: As per section 92(1), the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of company.
(g) Signing of financial statement & Board’s Report: As per Section 134(1), financial statement and Board’s Report can be signed only by one director.
Q17. Vinod formed a single person economic activity in the form of One Person Company with his brother Kishor as its nominee. On 10th May 2022, Kishor withdrew his consent as Nominee of the One Person Company. Can he do so? Examine whether the following individuals are eligible for being nominated as Nominee of the One Person Company as on 10th May, 2022 under the provisions of the Companies Act, 2013.
(I) Shyam is son of Vinod, who is 15 years old as on 10th May, 2022.
(II) Ashok, an Indian Citizen residing in India who is presently a member of a One Person Company. [June 2022 (4 Marks)]
Ans. Relevant provisions of the Rules 3 & 4 of the Companies (Incorporation) Rules, 2014 in relation to given case are as follows:
Nominee: Only a natural person who is an Indian citizen and resident in India shall be a nominee for the sole member of OPC. For this purpose “Resident in India” means a person who has stayed in India for a period of not less than 120 days during the immediately preceding nancial year. A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company.
No minor shall become member or nominee of the One Person Company or can hold share with bene cial interest.
Consent of nominee: The subscriber to the memorandum of OPC shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person Company.
Withdraw of consent by nominee: The person nominated by the subscriber or member of OPC may, withdraw his consent by giving a notice in writing to such sole member and to the One Person Company. However, the sole member shall nominate another person as nominee within 15 days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person so nominated in Form No. INC-3.
Filing with ROC: The company shall within 30 days of receipt of the notice of withdrawal of consent le with the ROC, a notice of such withdrawal of
2.12 PART A : SETTING-UP OF BUSINESS
consent and the intimation of the name of another person nominated by the sole member in Form No. INC-4 and the written consent of such another person so nominated in Form No. INC-3.
Considering the above provisions answer to given case is as follows:
(
I) Shyam, who is minor, cannot be appointed as nominee.
(II) Ashok cannot be appointed as nominee as a natural person shall not be member or nominee of more than a One Person Company.
Q18. Raman is an Indian Citizen, and his stay in India during the immediately preceding financial year is for 130 days. He appoints Sanjay, a foreign citizen, as his nominee, who has stayed in India for 125 days during the immediately preceding financial year. Is Raman eligible to incorporate a One Person Company (OPC)? If yes, can he give the name of Sanjay in the Memorandum of Association as his nominee? Justify your answers with relevant provisions of the Companies Act, 2013. [Dec. 2022 (5 Marks)]
Ans.: As per Rule 3 of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and whether resident in India or otherwise –
(a) shall be eligible to incorporate a One Person Company;
(b) shall be a nominee for the sole member of a One Person Company. For this purpose “Resident in India” means a person who has stayed in India for a period of not less than 120 days during the immediately preceding financial year.
Considering the above provisions, answer to given case is as follows:
(
i) Raman is an Indian Citizen and resident in India as his stay during the immediately preceding financial year is more than 120 days He is eligible to incorporate One Person Company in India.
(ii) Sanjay is a foreign citizen and hence he cannot be appointed as nominee in One Person Company even though his stay in India is more than 120 days
PRODUCER COMPANIES
Q19. Explain the concept of Producer Company.
Ans. Producer Company [Section 378A(I)]: Producer Company means a body corporate having objects or activities speci ed in Section 378B and registered as Producer Company under the Companies Act, 2013 or under the Companies Act, 1956.
The objectives for which producer companies may be formed are laid down in Section 378B
Every producer company shall deal primarily with the produce of its active members for carrying out any of its speci ed objects. This means there is an obligation on the producer company to deal primarily with the active members in conducting its activities.
Q20. Directors of ABC Ltd. want to incorporate a producer company. ABC Ltd. itself is in the production and harvesting business. You are the company secretary of ABC Ltd. You are requested to advise the Board of ABC Ltd. about incorporation of such a producer company and set out its objectives as per relevant provisions of the Companies Act. [Dec. 2017 (8 Marks)]
Ans. Objects of Producer Company [Section 378B]: The objects of the Producer Company shall relate to all or any of the following matters:
(
a) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit. However, the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution.
(b) Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members.
(c) Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.
(d) Providing education on the mutual assistance principles to its Members and others.
(e) Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members.
(f) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce.
(g) Insurance of producers or their primary produce.
(h) Promoting techniques of mutuality and mutual assistance.
(i) Welfare measures or facilities for the benefit of Members as may be decided by the Board.
(j) Any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote
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PART A : SETTING-UP OF BUSINESS
the principles of mutuality and mutual assistance amongst the Members in any other manner.
(k) Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.
Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects speci ed in this section.
Q21. Distinguish between: Limited Liability Partnership & Producer Company [Dec. 2010 (4 Marks)]
Ans. Following are the main points of distinction between LLP and Producer Company:
Points
Limited Liability Partnership Producer Company
Meaning Limited liability partnership means a partnership formed and registered under Limited Liability Partnership Act, 2008.
Governing Law
Internal rules & regulation
Meetings
Limited liability partnerships are governed by the Limited Liability Partnership Act, 2008.
Internal rules and regulation of LLP’s are governed by the LLP agreement.
In the LLP Act, there is no stipulation for meeting of partners either periodically or compulsory at the year end.
Business In an LLP, each partner has the authority to do so unless expressly prohibited by the partnership terms.
Remuneration
Borrowing power
There are no provisions in the LLP Act, 2008 regulating the remuneration payable to designated partners.
A producer company means a body corporate, having objects or activities speci ed in Section 581B of the Companies Act, 1956 and registered as producer company.
Companies are governed by the Companies Act, 1956.
Internal rules and regulation of the producer companies are governed by the MOA & AOA.
Every producer company must hold AGM every year. A meeting of the board shall be held not less than once in every 3 months and at least 4 board meetings shall be held in every year
In case of a producer company no individual director can conduct the business of the company.
The Companies Act, 1956 regulates the remuneration payable to directors.
There are no restrictions on the borrowing powers on the LLP. There are restrictions on borrowings power on the producer companies.
Points Limited Liability Partnership Producer Company
Accounts
The LLP can choose to maintain the accounts on cash basis/ accrual basis.
Audit The audit of LLP is not compulsory if the capital contributed does not exceed ` 25 lakh or if the turnover does not exceed ` 40 lakh.
Company Secretary
The appointment of Company Secretaries is not provided in the LLP Act, 2008.
Producer companies have to keep their accounts on accrual basis.
Audit of a producer company is compulsory.
Every producer company having an average annual turnover exceeding ` 5 Crore in each of 3 consecutive nancial years shall have a whole-time secretary.
Q22. ABC Producer Company Ltd. was incorporated on 11th July, 2013 as a producer company with objective of production of wheat and related products. The CAGR since inception is around 12%, better as comparative to other sector(s). However, during Covid-19 pandemic, there was tremendous upsurge in operating income, up by 110% as compared to previous year. There is huge Surplus Fund in the Company, hence, the Director (Finance) opined that fund may be invested in Stock Market related instruments including Equity, Bonds and Mutual Funds. He also suggested for doing F&O related transactions out of the Surplus Fund. However, the Company Secretary of the Company objected that the Fund can be invested in certain categories only. Examine.
[June 2022 (4 Marks)]
Ans. Investment of general reserves: As per Rule 5 of the Producer Companies Rules, 2021, a Producer Company shall make investments from and out of its general reserves in anyone or in combination of the following:
(
a) In approved securities, fixed deposits, units and bonds issued by the Central Government or State Governments or co-operative societies or scheduled bank.
(b) In a co-operative bank, State co-operative bank, co-operative land development bank or Central co-operative bank.
(
c) With any other scheduled bank.
(
d) In any of the securities specified in section 20 of the Indian Trusts Act.
(e) In the shares or securities of any other inter-State co-operative society or any co-operative society.
(f) In the shares, securities or assets of public financial institutions specified in Section 2(72) of the Companies Act, 2013.