Companies Act Section 2(22) Company Limited By Shares

Company Limited by Shares Section 2(22)

A "company limited by shares" is a type of company where the liability of its members is limited to the amount, if any, unpaid on the shares respectively held by them. In simpler terms, the shareholders' liability is limited to the amount remaining unpaid on the shares they hold in the company.

Key Features:

1. Share Capital: 

Companies limited by shares have a share capital, which is divided into shares of a fixed amount. 

Shareholders invest in the company by subscribing to these shares.

2. Limited Liability: 

Shareholders’ liability is limited to the face value of the shares they hold. 

If a shareholder fully pays for their shares, they have no further liability to contribute to the company’s debts or liabilities, even if the company is wound up.

3. Transferability of Shares: 

Shares in a company limited by shares are freely transferable, subject to any restrictions imposed by the company's articles of association or shareholders' agreement.

4. Separate Legal Entity: 

Like other types of companies, a company limited by shares is a separate legal entity distinct from its shareholders. 

It can own property, enter into contracts, sue, and be sued in its own name.

5. Perpetual Succession: 

The company enjoys perpetual succession, meaning it continues to exist irrespective of changes in its membership or shareholders.

Types of Companies Limited by Shares:

1. Private Company Limited by Shares:

 A private company is defined under Section 2(68) of the Companies Act, 2013. It restricts the right to transfer its shares, limits the number of its members to 200, and prohibits any invitation to the public to subscribe to its shares or debentures.

Characteristics: Private companies are often closely held by a small group of shareholders, such as family members or close associates. They have fewer regulatory requirements compared to public companies.

2. Public Company Limited by Shares:

 A public company is defined under Section 2(71) of the Companies Act, 2013. It does not restrict the transfer of its shares and has a minimum paid-up capital as prescribed by the Act. It can invite the public to subscribe to its shares or debentures.

Characteristics: Public companies are owned by a large number of shareholders and are subject to stringent regulatory requirements and disclosure norms. They can be listed on stock exchanges for trading their shares.

Importance:

1. Risk Management: Limited liability encourages investment and entrepreneurship by protecting shareholders' personal assets from the company's debts and liabilities.

2. Capital Formation: Companies limited by shares can raise capital by issuing shares to investors. This capital can be used for business expansion, investment in new projects, or operational expenses.

3. Corporate Governance: Shareholders elect the board of directors to manage the company on their behalf. Corporate governance practices ensure transparency, accountability, and protection of shareholders' interests.

4. Investor Confidence: Limited liability and regulatory oversight enhance investor confidence in the company. Investors are assured that their liability is limited to their investment in shares.

Legal Framework and Compliance:

Memorandum and Articles of Association: The company’s constitution, comprising the memorandum of association and articles of association, governs its operations, management structure, and internal rules.

Financial Reporting: Companies must prepare annual financial statements, including a balance sheet, profit and loss account, and cash flow statement. These statements must comply with accounting standards and be audited by a qualified auditor.

Regulatory Compliance: Companies are required to comply with various provisions of the Companies Act, 2013, and other applicable laws. This includes filing annual returns, conducting board meetings, and maintaining statutory registers.