In our country, various forms of business organizations are followed, such as sole proprietorship, partnership, limited liability partnership, company, etc. However, with the rapid growth of the economy, the “company” form of business organization gained significant popularity, and other forms started fading away gradually. There are various types of companies that may look quite similar, but they all have some distinct characteristics. In this article, we will explore the meaning of a company, and how many types of companies exist in India.
What is a Company as per Companies Act, 2013?
Before heading toward the types of Companies, it is very essential to understand the meaning of a company. The company is defined under Section 2(20) of the Companies Act, 2013. As per the section, a company is an association of a person who has a separate legal entity and has a perpetual succession. The capital of the company is divided into small denominations known as “shares”.
The term “separate legal entity” means that the company has a different existence from its shareholders. The company can hold assets in its name and can be sued or be sued. Similarly, “perpetual succession” means that the members may come or go, but the company will remain forever.
List of Types of companies
Here is the list of all the different types of companies under the companies act 2013:
- Statutory Companies
- Registered Companies
- Companies limited by shares
- Companies limited by guarantee
- Unlimited Liability Companies
- Public Companies
- Private Companies
- One Person Company (OPC)
- Foreign companies
- Indian Companies
- Section 8 Company
- Government Companies
- Small Companies
- Subsidiary Companies
- Holding Companies
- Associate Companies
- Producer Companies
- Dormant Companies
Types of Companies in India
There are various types of companies in India depending upon various factors such as liability, control, incorporation, transferability of shares etc.
Types of Company on the basis of Incorporation
On the basis of incorporation, the companies can be divided into 2 categories.
It refers to those companies which are constituted by a special Act of Parliament or State Legislature. The main objective of this type of company is to provide public service.
Since they are established under a special Act, the Company Act, 2013 has a limited application over such companies. In case of any conflict, the special Act will prevail over the Companies Act, 2013. For Example – Reserve Bank of India (RBI) Life Insurance Corporation of India (LIC), etc.
The Companies which are registered as per the provisions of the Company Act 2013 or any previous Company Law are called registered companies. This type of company comes into existence when they received a certificate of incorporation from the registrar of Companies (ROC)
Types of Companies on the basis of Liability
On the basis of liability, the companies can be divided into 3 parts-
Companies limited by shares
It refers to that company in which the liability of its members is limited by the amount mentioned in the memorandum of association of the company. However, any unpaid amount on the share can be called to pay off the liability.
The liability against the members can be enforced during the existence of the company as well as during the liquidation. It is important to note that when the shares are fully paid up, no amount can be claimed from the members.
For instance- X is a shareholder who has paid 75 on a share of face value 100. The company can call upon X to pay only the remaining 25 rupees and not exceed that. Companies limited by shares are by far the most prominent ones.
Companies limited by guarantee
In this type of company, the liability of the members is limited to such an amount as they undertake to contribute to the assets of the company in the event of its being wound-up. In simple terms, the liability of shareholders is limited to the amount of guarantee given by them in the memorandum of Association.
During the winding-up of a company, the members are put in the position of guarantors to discharge the company’s debt. Examples of such companies are Clubs, trade associations, research associations, etc.
Unlimited Liability Companies
It refers to those companies which do not fix the liability of their members. The members’ liability is unlimited and their personal property can be used to satisfy the debt of the company. These types of companies may have or may not have the share capital.
Types of Companies on the basis of the number of members
Under this category, the Companies can be divided into 3 parts-
A public company is defined under Section 2(71) of the Companies Act, 2013. For constituting a public company, it is essential to have a minimum of 7 members. The rules also prescribe a minimum paid-up capital for this type of Company.
One of the special features of a public company is that the buying and selling of shares are not restricted. Section 58 provides that the shares of a public company are freely transferable. If the Company fails to comply with the aforesaid provisions, it will relinquish the status of a “private company”. For converting a public company into a private company, it is essential to pass a special resolution (3/4th Majority) in the shareholders meeting.
A private company is defined under Section 2(68) of the Companies Act, 2013. It refers to an association of persons wherein the maximum number of members is capped at 200. A private company can’t invite the general public to subscribe to its shares or debentures.
The shares of a private company are not freely transferable and they can’t be transferred. All such restrictions must be specifically provided in the Articles of Association (AOA) of the Company. Just like with the public company, a private company can change its status by passing a special resolution (3/4th Majority) in the shareholders meeting.
One Person Company (OPC)
As per Section 2(62) of the Companies Act, 2012, a One Person Company refers to a company that has only one person as a member or shareholder. It must have 1 director on the board, and its sole member can function the role of director also.
In this type of Company, the concept of “nominee” gains utmost significance as after the death of the original member, the business of the company would become standstill. So, while registering such a company, it is essential to give the name of a nominee. It is not followed in other types of companies as they have perpetual succession.
Types of Companies in India on the basis of Domicile
As per Section 2(42) of the Companies Act, 2013, a “foreign company” means any company or body corporate which has a place of business or conduct business in India (Through itself or by its agent) The provisions provided between Section 379-393 are applicable to this type of Companies.
It refers to those companies in which the formation of the company and registration is done in India. It is an umbrella term and almost all the other types of Companies fall under it.
Other Types of Companies In India
Section 8 Company
It refers to a company that is registered under Section 8 of the Companies Act, 2013. It is also known as a not for profit company. The features of this type of company are-
- The object of the company is to promote commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- The profit earned, if any, shall be used for achieving the objects of the company.
- It prohibits the payment of dividends to its members.
- A section 8 company is exempted from using “Ltd” or “private Ltd” as a suffix to its name.
A government Company is a company in which the central government, state government, or in combination held a minimum of 51% paid-up share capital.
As per Section 2(85) of the Companies Act, 2013 a “small company” means a company, other than a public company in which the below conditions are satisfied,—
- paid-up share capital of which does not exceed 50 lakh rupees.
- The turnover for the previous year doesn’t exceed 2 crore rupees in previous year.
As per Section 2(87) of the Companies Act, 2013, a subsidiary company is a company in which the holding company-
- Control the composition of the board of directors. The control can be determined if the holding company has a right to appoint or remove the majority of directors.
- Exercise control over more than half of the voting rights of the subsidiary company.
The definition of a holding company is provided under Section 2(46) Companies Act, 2013. It means a company of which such companies are subsidiary companies.
As per Section 2(6) of the Companies Act 2013, an associate company refers to a company in which another company has a significant influence, but it is not a subsidiary of the influence exerting company. The term “significant decision” means the power to control at least 20% of total voting rights or participation in managerial affairs of the associate company.
It refers to a legally recognised association of farmers/agriculturalists with an objective to improve the standard of their living, and ensure a stable income and profitability.
Some Conditions for Producer Company-
- Only the person engaged in the primary sector is eligible to be a member of such a company.
- The name of the company shall end with the words “Producer Company Limited“.
- The minimum and the maximum number of directors in a Producer Company is 5 and 15 respectively.
It refers to that company that hasn’t been carrying out its operation or hasn’t made significant accounting transactions in the last 2 financial years.
The Companies Act, 2013 provides for different types of Companies on the basis of different factors. A company can be either a public company or a private company either limited by shares or limited by guarantee or have no limit of liability on its members. Further, a single person can also constitute a company. There are other types of companies also such as Section 8 companies, dormant companies, subsidiary companies, etc.
You can follow us on Instagram and Linkedin to get notifications of new articles published by Legal Study Material.