India has a number of business organisations, which includes approximately 18 different types of companies. These range from sole proprietorships to limited liability partnerships, public companies and also private corporations. But due to the increasing economic growth in the country.
In our country, various forms of business organizations are observed, such as sole proprietorship, limited partnership, Limited Liability Companies, companies, etc. However, with the rapid growth of the economy, the “corporate” form of business organization, or other forms gradually began to disappear. Different types of companies may look quite similar, but they all have certain distinct characteristics.
What is a company under the Companies Act 2013?
The different types of companies under Companies Act 2013, it’s essential to learn the concept of a company as defined under the Act. As per Section 2(20) of the Act, a company is a collective of individuals with a separate legal identity and continuous existence. The company’s capital is fragmented into smaller units known as “shares.”
The term “separate legal entity” goes to prove that the company is an entity which is different from its shareholders. It can own assets in its name and is capable of legal actions, either suing or being sued. Additionally, “perpetual succession” implies that the company continues to exist regardless of changes in its membership, ensuring continuity in its operations and existence.
List of varieties of Company
- Statutory Company
- Registered Company
- Company limited by shares
- Company limited by guarantee
- Company with unlimited liability
- Public Company
- Private Company
- One Person Company (OPC)
- Foreign Company
- Indian Company
- Section 8 Company
- Government Company
- Small Company
- Subsidiaries
- Holding Company
- Associated Company
- Production Company
- Dormant Company
Types of companies based on liability
The members of a company have either limited or unlimited liability. The liability of the company member arises at the time of bankruptcy, company loss, winding up or paying the company’s debt. Thus, a company established under the Companies Act, 2013
- Limited By Shares- A company limited by shares means the liability of the company members is limited by the Memorandum of Association (MOA). The company members are liable only for the unpaid amount on the shares respectively held by them. The equity shares held by a member measure the shareholder’s ownership in the company.
Limited by Guarantee –A company limited by guarantee means the member’s liability is limited to the amount they guarantee to contribute towards the company’s assets. The member’s liability is limited by the company MOA. The members undertake in the MOA to contribute the guaranteed amount in the event of the company being wound up. The percentage of the member’s ownership is based on the amount guaranteed by them.
- Companies with unlimited liability- It applies to those companies that do not determine the liability of their members. Members’ liability is unlimited and their assets can be used to satisfy the company’s debt. They may or may not have share capital.
Types of companies based on the number of members
- Private Limited Company- A private limited company is a company where there cannot be more than 200 members. A minimum of two members are required to establish a private limited company. The members cannot transfer their share, and it is suitable for businesses that prefer to register as private entities. There needs to be a minimum of two directors, and there can be a maximum of 15 directors in a private limited company.
- Public Companies- A public company is defined in Section 2 (71) of the Companies Act of 2013. To establish a public company, it is necessary to have at least 7 partners. One of the special features of a public company is that there are no restrictions on the buying and selling of shares. Section 58 stipulates that the shares of a public company are freely transferable. If the company does not comply with the above provisions, it will renounce the status of “private company”. To transform a public company into a private company, it is necessary to adopt a special resolution at the general meeting (3/4 majority).
One Person Company –According to Section 2(62) of the Companies Act 2012, a sole proprietorship is a company that has only one person as a partner or shareholder. The board of directors must have 1 director and its only member can also hold the role of director. In this type of company, the term “nominee” assumes the highest importance because, after the death of the original member, the business of the company would cease.
Types of companies based on company incorporation
- Statutory Companies- Statutory companies are incorporated by a special Act of Parliament or State Legislature. They primarily exist to provide a public service. As they are established under separate laws, the Companies Act, 2013, has limited scope for them, and in case of any conflict, the Special Act prevails.
Registered Companies– Registered companies are formed by registering under the provisions of the Companies Act, 2013, or any previous Companies Act. These companies receive a certificate of incorporation.
Types of Companies in India Based on Residence
- Foreign companies- According to Section 2(42) of the Companies Act, 2013, “foreign company” means any company or body corporate having its place of business or carrying on business in India (through itself or its agent).
- Indian companies- It applies to those companies where incorporation and registration are done in India. It is an umbrella term and almost all other types of companies fall under it.
Other types of companies in India
- Section 8 Company (Non-profit Company)- A Section 8 Company registration registered under Section 8 of the Companies Act 2013, is also known as a non-profit company. Some of the major features of such company includes:
- Objectives focused on promoting commerce, art, science, sports, education, research, welfare, religion, charity, environmental protection, or other socially beneficial goals.
- Any profits generated are utilised to further the company’s stated objectives.
- Prohibits the distribution of dividends to its members.
- Exempt from using “Ltd” or “private Ltd” as a suffix to its name.
- Government Companies – Government companies are those in which the Central Government, State Government, or a combination thereof holds at least 51% of the paid-up share capital.
- Small Companies- Small companies, defined in Section 2(85) of the Companies Act 2013, must meet the following criteria:
- Share capital paid up not exceeding 50 lakh rupees.
- Turnover for the previous year does not exceed 2 crore rupees.
- Subsidiary Company- A subsidiary company, in accordance with Section 2, sub-section 87 of the Companies Act of 2013, is a company wherein the holding company:
- Exercises management and control over the composition of the board of directors. This is established if the holding company possesses the authority to appoint or remove a majority of the board members.
- Exercises control over more than half of the subsidiary’s voting rights.
- Holding Companies-Holding companies, as defined in Section 2(46) of the Companies Act 2013, are companies of which other companies are subsidiaries.
- Associated Companies- According to Section 2(6) of the Companies Act 2013, associated companies are those in which another company holds substantial influence but is not a subsidiary of the influencing company. “Substantial influence” means having the power to control at least 20% of the total voting rights or participation in the management affairs of the affiliate.
- Producer Companies-Producer companies are legally recognised associations of farmers or producers aiming to improve their standard of living and ensure stable income and profitability. Key conditions for producer companies include:
- Membership restricted to individuals working in the primary sector.
- Company name ending with the words “Producer Company Limited.”
- The minimum and maximum number of directors in a producer company are 5 and 15, respectively.
- Sleeping or Dormant Companies-Sleeping or dormant companies refer to companies that have not conducted business or significant accounting transactions in the last 2 financial years.
FAQs:
Q: Can a private company transform into a public company?
A: Absolutely! Through a process known as ‘conversion,’ a private company can transition into a public company, allowing it to raise capital from the public and broaden its shareholder base.
Q: Can a foreign company operate in India without registration?
A: No dice. The Companies Act, 2013 mandates registration for foreign companies looking to make their mark in the Indian business landscape.
Q: Are there specific criteria for a company to be considered "Small"?
A: Yes, the criteria for a company to be classified as “Small” include lower capital requirements, reduced compliance obligations, and a simplified regulatory framework
Q: What role do Non-Banking Financial Companies (NBFCs) play?
A: NBFCs are financial institutions that provide banking services without meeting the legal definition of a bank. They play a crucial role in the financial ecosystem by offering various financial services,
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