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CA Intermediate · Corporate and Other Laws · Preliminary

Meera, Kiran and Sunil are three individuals who wish to form a company to run a boutique hotel in Jaipur. They want a structure where each member's liability is limited to the amount unpaid on shares held, and shares can be freely transferred with no cap on members. Which type of company would be the correct choice under the Companies Act, 2013 if they wish to offer shares to the public later?

A public company limited by shares is correct. It allows free transferability of shares, has no maximum on members, can invite the public to subscribe to securities, and limits member liability to the unpaid amount on shares. Private companies, OPCs and guarantee companies do not meet these requirements.

  1. AOne Person Company
  2. BPrivate company limited by shares
  3. CPublic company limited by sharesCorrect
  4. DCompany limited by guarantee

Explanation

Only a public company can invite the public to subscribe to its securities and has no cap on members or restriction on share transfer. A private company must restrict transfer and prohibit invitation to the public, and an OPC has only one member. A guarantee company limits liability to the amount guaranteed, not unpaid share amount.

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