All About Different Types of Company in Company Laws
Published On: Aug 3, 2017 • Last Updated: Jan 11, 2024 • 7.8 min read •
The first and one of the most difficult decisions while starting a business is choosing the right business structure. While keeping in mind the benefits related to fundraising, separate existence, and growth opportunities,company registration in India is quite popular. However, what comes next is often confusing to the general public at large. Even after you choose that you want to register a company, you have to select from the various types of company in Company Law of India. However, there’s no need to worry at all. Through this article you will get an insight on all the different types of companies in India!
What are the types of company?
As per the prevailing laws, a company means any company incorporated under Companies Act, 2013 or under any previous company law. The companies act, however, provides for the registration of various different types of company based on many internal and external factors. Further, these company types have sub-categories which include various different types of companies. For example, types of companies based on members or types of companies based on the liabilities, and others. Let’s take a look at each type and its subtypes.
Classification of types of company in company law
In Company law, there are different types of company classifications. The table below shows the broad section of classification and the kinds of companies covered therein.
Classification in Company Law
Number of Members
One Person Company; Private Limited Company; Public Company
Company Limited by Shares; Company Limited by Guarantee; Unlimited Company
Ownership / Control
Holding Company; Subsidiary Company; Associate Company; Government Company; Statutory Company
Listed Company; Unlisted Company
Micro Companies; Small Companies; Medium Companies
Types of companies based on Number of Members
Certain types of companies exist on the basis of the minimum and maximum number of members it can have. Hence, before you proceed with thecompany registration process, you need to ensure that you have chosen the right type of company. Let’s look at the member classification:
To incorporate a Pvt ltd company in India, there must be at least 2 members and at most 200 members at the time of incorporation. You can also increase the members of a private limited company post its incorporation. Even though the members can transfer ownership freely at any time, it is mandatory to maintain this statutory limit at all times.
An OPC or one person company is also a sub type of the private companies in India. However, it is tailor made for a one man army, ie., a sole business owner. Theone person company registration process is quite simple and easy as compared to the other types of the companies in India. As the name suggests, there can only be one (1) member in an OPC at all times.
From all types of company, the concept of public company is quite popular for large scale enterprises. It is common in large scale projects because you need a minimum of 7 members to start a public company in India. Besides, there is no upper limit on the members of a public company.
Kinds of Company based on Liability
The classification of companies on the basis of the liabilities of the owners also plays an important role inchoosing the appropriate business structure. Let’s take a look at the types of company on the basis of liability of members (shareholders).
Company Limited by Shares
When you divide the capital of a company in small portions, it is the ‘share capital’. The shares and shareholding displays the interest of the owner in his/her business. In this type of company, the liability of the shareholder is limited to his shareholding in the company. In case of any losses, etc the shareholder shall only be liable up to the extent of the unpaid amount from the total shares subscribed by them. This type includes private companies, public companies, and OPC.
Company Limited by Guarantee
In some Private and public companies, members don’t divide the capital into shares. Here, the capital from members is in the form of a guarantee. In this case, the subscribers to a memorandum of a company will subscribe to a certain guaranteed amount of capital and sign the subscribers sheet. In this case, the amount they subscribe to is equivalent to their ownership in the company. The fun part is, even this company is free to issue shares if required.
The least popular option from these types of companies are unlimited companies in India. As the name suggests, the liability of members of an unlimited company is limitless. Here, they can even be held personally liable to make up for company losses.
Different Types of Company based on Ownership / Control
Holding company is the organization that has power over any subsidiary company. Besides, this type of an organization is often also referred to as a Parent or Umbrella company. It holds the majority of shares in a subsidiary company.
When the majority of controlling powers of one company is given to another company (holding), it becomes a subsidiary. Usually, the parent organization controls the composition of its Board of Directors or its more than 50% of voting powers. When 100% of the matters are with a holding company, then it is a wholly owned subsidiary.
An associate company is somewhat similar to a subsidiary company. The only difference being, the fact that in a subsidiary, the parent company has majority of the shareholding. However, in an associate company, a parent company has minority shareholding.
Certain types of company in the company law are also owned by the government. This may be applicable to any central or state government authority. However, the only catch here is that the government body’s shareholding must be at least 51% in the organization.
A statutory body is a governing body formed after a relevant legislation is passed. Similarly, a statutory corporation refers to a government organization formed after an Act is passed for the purpose. For example, the Life Insurance Corporation of India (LIC) is a statutory body under the Life Insurance Corporation Act, 1956.
Types Based on Listing
This kind refers to a company whose stock is listed on a recognised stock exchange board. Which means that it is open for the public to trade stocks. These companies are a part of public companies in India.
It is a subtype of a public company. Unlisted refers to all public companies that are not listed on any stock exchange for public trading of stocks and shares.
Kinds Based on Size
It is an organization whose investment in plant and machinery, etc is not more than 1 Crore and annual turnover is not more than 5 crore.
The definition of small company as per the Company law whose investment is not more than 10 crore and annual turnover is not more than 50 crore.
Companies with total investment in machinery and plants less than 50 crores and annual turnover less than 250 crore rupees are medium companies.
Other types of company
When a company is incorporated in India but owned by foreigners, it is a foreign company. A company is said to be a foreign company when more than 50% shareholding of the company is owned by foreign nationals. Foreign company registration is at a trend with the increase of the global interest in our nation’s economy.
Section 8 Company
Section 8 of the Act provides for a special category of companies. Hence, this type of company is ‘section 8 company’. The purpose of registering these types of company is not to generate profits. It is created entirely for charitable purposes. So, all NGOs in India are section 8 companies. Since this is a special type of company, it is important to note that before section 8 company registration, you have to obtain certain important approvals.
In simple terms, a producer company is a legally organized body for farmers. Here, the object of the company is producing, procuring, harvesting, selling and exporting the goods that their members produce. These goods are usually farming products. This type of company is introduced in India to give an organized structure to the farmers.
This is a special kind of an organization. A company is dormant as per the company law, when it is incorporated with the aim to hold an asset/s, intellectual property, etc. However, there are not many transactions happening within the company. In some cases, it is possible that the company is formed to cater to a future project.
These companies are more focused towards lending and borrowing money from its members. The Nidhi companies are more like a treasure for its members.
It is vital for business owners to make well informed decisions for their businesses. This article covers all types of companies in India. Besides, LegalWiz.in experts are here to guide you through the entire process of choosing and incorporating your business. Don’t hesitate, we’re just a click away!
Frequently Asked Questions
What are kinds of companies in India?
The Companies Act 2013 gives provisions for the incorporation of many different kinds of companies. These include One Person Company, Private Limited Company, Public Company, Foreign Company, and Charitable Company, and more.
What is a government company?
Any company with atleast 51% shareholding by a government body is known as a government company.
What are the characteristics of different companies?
Different types of companies usually have different characteristics. For example, an OPC is owned and governed by a single shareholder. Whereas, a Pvt Ltd company has limited liability and a public company is open for the general public to trade in stocks.
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