Types of company

TYPES OF COMPANY

Author: Ayushi Verma

INTRODUCTION

The Companies Act, 2013 is the law governing the countries in India. The act came into force across India on 12th September 2013 and has a few amendments to the previous act of 1956. It covers the incorporation, dissolution, and the running of companies in India It also provides the types of companies that can be promoted and registered under the act. There are three basic types of companies registered under this act:

  • Private Companies;
  • Public Companies; and
  • One Person Company (to be formed as Private Limited)

Section 3(1) of the Companies Act states that a company may be formed for any lawful purpose by:

  • Where the company is a public company, it should be formed by seven or more persons.
  • Where the company is a private company, it should be formed by two or more person.              
  • One Person Company which is to be formed by one person to be formed as private limited.

 (2) A company formed by sub-section (1) may be either:

  • A company which is limited by shares; or
  • A company limited by guarantee; or
  • An unlimited company

TYPES OF COMPANY

1. Types of Company on the basis of incorporation

a. Statutory Companies: Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules, and regulations governing its employees and its relationship with government departments.[1]For example- Reserve Bank of India, Life Insurance Corporation of India, etc  

b. Registered Companies: Organization which is formed and registered with the appropriate statutory authority of the country in accordance with the corporate and securities law of that country.

2. Types of Company on the basis of Liability

a. Unlimited Liability Companies: A company in which all members or shareholders have a total and joint responsibility to cover all debts and other liabilities the company generates, regardless of how much capital each contributes.

b. Companies limited by guarantee: This is a type of firm in India in which the liability of each member is limited to such amount as the members may voluntarily undertake under the memorandum to contribute to meet out the deficiency of the assets of the company in the event of its being wound up.[2]

c. Company limited by shares: This is a type of firm in India having the liability of its members limited by the memorandum to the amount unpaid on the shares respectively held by them.[3]

3. Private Limited Company: These are held by a few individuals privately who have a legal entity. They cannot invite the general public to subscribe to its securities. It is “Limited by Shares” i.e. there are shareholders associated with the company and the theoretical value of the shares & any paid in return for the issue of shares by the corporation is limited to the capital which is initially invested.[4]

4. Public Company: A public company is a corporation whose ownership is distributed amongst general public shareholders via the free trade of shares of stock on exchanges or over-the-counter markets.[5]

5. One Person Company:  It is a company which is formed by only one member. Provisions of One Person Company under Companies Act, 2013:

  • All the provisions which are applicable to a private company shall also apply to OPC.
  • For legal purposes, it should be treated as a private company.
  • ‘One person Company’ should be included with the name of the company within brackets.
  • There should be maximum of 15 directors

6. Holding and Subsidiary Company: A company controlled by another company is called a Holding Company and the company so controlled is called a subsidiary company. A company shall control the other company in the following cases:

  • If it controls the majority composition of the Board of Directors of another company.
  • If it exercises or controls more than half of the shares of another company.
  • If another company is a subsidiary to the first mention subsidiary company.

7. Associate Company: Section 2(6) defines the “Associate Company.” An associate company, in its broadest sense, is a corporation in which a parent company possesses an ownership stake. Usually, the parent company owns only a minority stake of the associate company, as opposed to a subsidiary company, in which a majority stake is owned.[6]

8. Small Company: Section 2(85) of the Companies Act defines “Small company”. It should have:

  • Paid-up share capital of which does not exceed 50 lakhs rupees or such higher amount.
  • Turnover of which as per its last profit and loss accounts does not exceed 2 crore rupees or such higher amount.

9. Government Company: Section 2(45) of the Companies Act defines “Government Company” Government Company is a company or an organization in which at least 51% of the paid-up share capital is held by the central government or the state government or partly by both central and state government. These are many government companies, few of them are, Steel Authority of India Limited, Bharat Heavy Electricals Limited, Coal India Limited, State Trading Corporation of India, etc.[7]

10. Dormant Company: Section 455(1) defines the “Dormant Company”. A dormant company is one that has been incorporated at Companies House but is not currently carrying on any kind of business activity or receiving any form of income.

HMRC considers this type of company to be dormant (inactive) for Corporation Tax purposes. A company can be dormant from the date of its incorporation, or it can become dormant after a period of trading activity.[8]


[1] https://en.wikipedia.org/wiki/Statutory_corporation

[2] https://www.lawyered.in/legal-disrupt/articles/types-companies-india-detailed-breakdown/#:~:text=Company%20limited%20by%20Guarantee%3A%20This,of%20its%20being%20wound%20up

[3] ibid

[4] https://en.wikipedia.org/wiki/Private_limited_company

[5] https://www.investopedia.com/terms/p/publiccompany.asp

[6] https://www.investopedia.com/terms/a/associate-company.asp

[7] https://www.toppr.com/guides/business-studies/private-public-and-global-enterprises/government-company/

[8] https://www.1stformations.co.uk/blog/what-is-a-dormant-company/

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