The principal forms of business organisation in India are:

• Companies - both public and private,
• Partnerships, and
• Sole proprietorship.

Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act, 1956 (the Act). The Act, which has been enacted to oversee the functioning of companies in India, draws heavily from the United Kingdom's Companies Acts and although similar, is more comprehensive. The Registrar of Companies (ROC) and the Company Law Board (CLB), both working under the Department of Company Affairs, ensure compliance with the Act.

A company can be a public or a private company and could have limited or unlimited liability. A company can be limited by shares or by guarantee. In the former, the personal liability of members is limited to the amount unpaid on their shares while in the latter, the personal liability is limited by a pre-decided nominated amount. For a company with unlimited liability, the liability of its members is unlimited.

Apart from statutory government owned concerns, the most prevalent form of large business enterprise is a company incorporated with limited liability. Companies limited by guarantee and unlimited companies are relatively uncommon.

Private Companies

A private company incorporated under the Act has the following characteristics:

• The right to transfer shares is restricted.
• The maximum number of its shareholders is limitecl to 50 (excluding employees).
• No offer can be made to the public to subscribe to its shares and debentures.

Private companies are relatively less regulated than public companies as they deal with relatively smaller amounts of public money. A private company is deemed to be a public company in the following situations:

• When 25 per cent or more of the private company's paid-up capital is held by one or more public companies.
• The private company holds 25 per cent or more of the paid-up share capital of a public company.
• The private company accepts or renews deposits from the public.
• The private company's average annual turnover exceeds Rs 100 million during a period of 3 consecutive financial years.

Public Companies

A public company is defined as one which is not a private company. In other words, a public company is one on which the above restrictions do not apply.

Foreign Companies

Foreign companies are those which have been incorporated outside India and conduct business in India. These companies are required to comply with certain rules under the Act. As a result, liaison and project offices and branches of foreign companies in India are regulated by the Act. Such companies have to register themselves with the ROC, New Delhi within 30 days of setting up a place of business in India.

Two kinds of share capital are permitted:

• Preference share capital (preferred stock)
• Equity share capital (common stock)

The restriction is, however, not applicable to private companies which are not subsidiaries of a public company. The nominal value of shares is not prescribed by the Act but is normally Rs 10 per share for equity shares and Rs 100 per share for preference shares.

Pricing of new issues of share capital has been substantially freed from the administrative control authority that prevailed earlier. The issue of capital by listed companies is govemed by guidelines issued by the Securities and Exchange Board of India (SEBI), the body that regulates and oversees the functioning of the Indian stock markets. Shares can be issued at par, at a premium or at a discount by existing companies. However, a company has to obtain permission from regulatory authorities before issuing shares at a discount.

The Securities and Exchange Board of India

The Securities and Exchange Board of India was established in 1988 through a Government resolution. The board comprises representatives from the Ministries of Finance and Law, the Reserve Bank of India and appointees of the Central Government.

Over the years the role and authority of the body has been expanded to ensure greater responsiveness to the needs investors, issuers of securities and market intermediaries.

In order to facilitate investments by overseas investors, and to enhance their confidence in the regulatory and redressal mechanisms, SEBI has created an Overseas Investors Cell. The Overseas Investors Cell addresses and answers queries on registration procedures, formalities, and other investment related issues pertaining to SEBI. The cell also has a window for Redressal of Overseas Investors' Grievances ("ROVING-WINDOW"- e-mail: oic@sebi.gov.in).

Web site address: http://www.sebi.gov.in

A key to the abbreviations used above is provided below:

SIDC : State Industrial Development Corporation
SSI : Small Scale Industries
SIA : Secretariat of Industrial Assistance
SSIDC: Small Scale Industrial Development Corporation
SFC : State Financial Corporation
DIC : District Industry Centre
GOI : Government of India
IDBI : Industrial Development Bank of India
ICICI : Industrial Credit and Investment Corporation of India
IFCI : Industrial Finance Corporation of India