Understanding Company Structures: Public vs. Private and Key Formation Documents
Understanding Company Structures: Public vs. Private
The term “company” has evolved significantly over time. In the modern business world, a company is an association of individuals formed for a common purpose. The Companies Ordinance outlines various company types, including public and private companies.
Definition of Public Company
A public company is not a private company and consists of at least seven members and seven directors.
Definition of Private Company
A private company, as defined in Section 2(28), restricts the transfer of its shares, limits its members to 50 (excluding employees), and prohibits public invitations to subscribe for shares or debentures. Joint shareholders are treated as a single member.
Differences Between Private and Public Companies
i. Membership
Private companies have a minimum of 2 and a maximum of 50 members, while public companies have a minimum of 7 and no maximum limit.
ii. Name
Private companies use “Private Limited” after their names, while public companies use “Limited.”
iii. Commencement of Business
Private companies can commence business after obtaining a certificate of incorporation, while public companies require both a certificate of incorporation and a certificate of commencement.
iv. Memorandum and Articles of Association
These documents are signed by at least two people for private companies and at least seven for public companies.
v. Tax Payment
Private companies pay tax on their entire profit, while public companies and individuals pay tax separately.
vi. Statutory Meeting
Holding a statutory meeting is not mandatory for private companies but is compulsory for public companies.
vii. Prospectus Filing
Private companies are not required to file a prospectus or statement-in-lieu of prospectus, unlike public companies.
viii. Share Transfer and Sale
Private companies cannot sell or transfer their shares, while public companies can.
ix. Dissolution
The Companies Ordinance provides separate procedures for dissolving private and public companies.
Key Formation Documents: Memorandum and Articles of Association
The Companies Ordinance outlines specific procedures and rules for company registration. Documents like the Memorandum and Articles of Association are filed with the registrar before and after incorporation.
1. Articles of Association
This document contains rules and regulations governing the company’s internal affairs, business conduct, member relations, and member rights and duties.
Preparation of Articles of Association
Key points include printing, dating, numbering, dividing into paragraphs, and signing by subscribers.
Contents of Articles of Association
The articles cover topics such as director appointment, powers and duties, company seal, meeting procedures, winding up, director qualifications and disqualifications, board meeting proceedings, share conversion and transfer methods, and member voting powers.
Alteration of Articles of Association
Alterations require a special resolution with at least a three-fourths vote if affecting member rights or liabilities.
2. Memorandum of Association
This document governs the relationship between the company and the outside world.
Preparation of Memorandum of Association
Key points include printing, numbering, dividing into paragraphs, and signing by members.
Contents of Memorandum of Association
The memorandum states the company name, registered office location, business objectives, capital structure, shareholder liabilities, and limitations.
Alteration of Memorandum of Association
Amendments require a special resolution, court approval, or central government intervention.
Final Analysis
The Memorandum and Articles of Association are interconnected public documents. The articles can clarify ambiguities or silence in the memorandum. These documents are essential for establishing and governing both public and private companies.