Though the liability of the members of such companies is limited, yet in most of the cases, they may not be required to use the word ‘limited’ as part of their names. Annual Report on the working of each such company is required to be placed on the table of the Legislature (Parliament or State Legislative Assembly as the case may be). The audit of such companies is conducted under the supervision, control and guidance of the Comptroller and Auditor General of India. Some of the important statutory companies are Reserve Bank of India, State Bank of India, Life Insurance Corporation of India, Industrial Finance Corporation, etc.
Companies registered under the Indian Companies Act are known as Registered Companies. These companies are governed and regulated by the provisions of the Companies Act. These companies may be limited by shares or limited by guarantee or unlimited companies. (i) Companies Limited by Shares: A company having the liability of its members limited by the amount, if any, unpaid on the shares respectively held by them, is called as a company limited by shares [Sec.
12 (2) (a)]. For example, if AB. Ltd. has a share capital of 10,000 shares of Rs. 10 each, and A has purchased 100 shares on which he has paid so far Rs. 6 per share, the maximum liability of A is only Rs. 4 per share (the unpaid amount). Also known as ‘Limited Liability Company’, a large majority of companies registered in India belongs to this category.
The last word of the name of such company is ‘Limited’ (Ltd. in short). (ii) Companies Limited by Guarantee: Company limited by guarantee, also called Guarantee Company is a company in which liability of each member is limited to such amount as the members may voluntarily undertake under the memorandum of association of the company to contribute to meet out the deficiency of the assets of the company in the event of its being wound up. The guaranteed amount may differ from member to member [Sec. 12 (2) (b)]. The amount guaranteed by each member is in the nature of a reserve capital. It cannot be called up except in the case of winding up of the affairs of the company. No charge can be created on the guarantee of the members.
The articles of association of such a company state the number of members with which the company is to be registered. [Sec. 27 (2)] These companies may or may not have share capital. If the company has a share capital, liability of members shall be two-fold, firstly liable to pay the amount which remains unpaid on their shares plus the amount payable under the guarantee.
The guarantee undertaken by the members would be payable only in the event of winding up of the company. Also referred as non-trading companies, the objective of these companies is not to earn profits. These companies are usually formed for the promotion of educational or scientific research or for any other kind of social or charitable purposes. Sports club, trade associations, NGOs are usually registered as guarantee companies. (iii) Unlimited Companies: A company not having any limit on the liability of its members is termed as an unlimited company [Sec. 12 (2) (c)].
In the case of an unlimited company, liability of each member extends to the whole amount of the company’s debts and liabilities. The Articles of an unlimited company should state the number of members with which the company is to be registered. If it has a share capital, the amount of share capital with which the company is to be registered, should also be stated in the Articles [Sec.
27(1)]. The personal liability of the members of the unlimited company to contribute towards the payment of its debts is not an asset of the company. It is a contingent liability of the members which will fall due only on the winding up of the company. No charge can be created on the personal liability of the members.
An unlimited company may or may not have any share capital. In case it has share capital, it can increase or reduce its share capital without any restriction. Such type of companies, though permitted by the Companies Act, is very few in the country.