INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
Dua Associates 202–206, Tolstoy House 15 Tolstoy Marg New Delhi – 110001 India
Tel: +91 112 371 4408 Fax: +91 112 331 7746 Email: duadel@duaassociates.com Web: www.duaassociates.com
1. Types of Company, Share Classes and Shareholdings 1.1 Types of Company The Companies Act, 2013 (the “Act”) is the primary legislation in India relating to companies. The Act pro- vides for two main types of companies that can be formed in India: • a private company whose articles of association (“articles”) restrict the right to transfer its shares, limit the number of its members to 200 and prohibit invitation to the public to subscribe to its securi- ties; and • a public company. The Act also allows for a one-person company, which is a private company with only one person as its mem- ber. These companies can be limited by shares or by guar- antee, or can be an unlimited company. Additionally, a subsidiary of a company that is not a private company is deemed a public company, even if its articles classify it as a private company. 1.2 Types of Company Used by Foreign Investors Foreign investors typically prefer to establish a private company limited by shares for their investments and ventures in India. This is because the Act exempts pri- vate companies from several regulations, giving them a more advantageous position compared to public companies. The compliance requirements for private
companies are less stringent than those for public companies, allowing for greater flexibility in manage- ment and operations. Foreign investors are not permitted to set up a one- person company as only a natural person who is an Indian citizen – regardless of whether resident in India or not – is eligible to be a member of such company. 1.3 Types or Classes of Shares and General Shareholders’ Rights A company limited by shares can issue two kinds of shares: equity shares and preference shares. Equity share capital can be issued either with voting rights or with differential rights as to dividend, voting or oth- erwise. Preference share capital refers to the share capital of the company that carries or would carry preferential rights or that accords priority with regards to the payment of dividend and repayment in the case of a winding-up or repayment of capital. A private company may issue (on terms it deems appropriate) any type of share capital. However, pri- vate companies typically restrict their share capital to the two kinds mentioned above. An equity shareholder has the basic rights to: • attend and vote on resolutions at a general meet- ing; • receive copies of the annual report, notice of a general meeting and declared dividends; and • inspect documents such as the members’ register and the minutes of general meetings.
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