TYPES OF COMPANY
A Company can be defined as an “artificial person”, invisible, created by or under law, with a discrete legal personality, perpetual succession, and a common seal.
A Company, as per the Companies Act, 2013 is a company incorporated under Companies Act, 2013 or under any previous company law.
A Company is a legal entity formed by a group of individuals to engage in and operate a business enterprise in a commercial or industrial capacity. Its business line depends on its structure, which can range from a partnership to a proprietorship, or even a corporation. The Companies Act, 2013 prescribes following types of companies in India on different basis:
Types of companies based on number of members
The following types of companies based on number of members are:
- Private company- In terms of members, private companies need to have a minimum of 2 and maximum of 200. These members include present and former employees who also hold shares. These companies are those whose articles of association restrict free transferability of shares.
- Public company- In contrast to private companies, public companies need to have a minimum of 7 members, but the maximum number of members they can have is limited. These companies allow their members to freely transfer their shares to other.
- One person company- These kinds of companies have only one member as their sole shareholder. They are separate from sole proprietorship and they dont need to have any minimum share capital.
Types of companies based on liability
When we look at the liabilities of members, companies can be limited by shares, limited by guarantee or simply unlimited.
- Company limited by shares- Sometimes, shareholders of some companies might not pay the entire value of their shares in one go. In these companies, the liabilities of members is limited to the extent of the amount not paid by them on their shares. This means that in case of winding up, members will be liable only until they pay the remaining amount of shares.
- Company limited by guarantee- In some companies, the memorandum of association mentions amounts of money that some members guarantee to pay. In case of winding up, they will be liable only to pay only the amount so guaranteed. The company or its creditors cannot compel them to pay any more money.
- Unlimited company- In this type of company, the liability of the members is not limited. In case of any debt arises, the liability of the members does not limit to their part in company, rather it extends to their personal assets also. In present scenario, this type of company is not being chosen to be incorporated by the entrepreneurs.
Other types of companies
- Section 8 company- A company is referred to as section 8 company when it registered as a Non-Profit Organization (NPO) i.e. when it has motive of promoting arts, commerce, education, charity, protection of environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.
- Foreign company- The term ‘foreign company’ is clearly laid down under Section 2 sub-section 42 of the Companies Act, 2013 (New Act). A foreign company is any company or body corporate incorporated outside India which,
- has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
- conducts any business activity in India in any other manner.
- Small company- Companies with a paid up capital of Rs. 2 crore or less and turnover of 20 crore or less are defined as small companies. Small companies enjoy various advantages over other companies in terms of compliance requirements.
- Producer company- A producer company is basically a company registered to deal with the primary production of its active member related to farming. The main objective includes production to its selling and exporting also.
- Subsidiary company- Referred as subsidiary, it is a company in which other company controls the composition of its Board of Directors or its more than 50% of voting powers. In case, where 100% voting powers are held by single holding company, the subsidiary is known as wholly Owned Subsidiary (WOS) of the holding.
- Holding company- Holding companies exercise control over their subsidiaries by dictating the composition of their board of directors. Furthermore, parent companies also exercise control by owning more than 50% of their subsidiary companies’ shares.
- Associate companies- Associate companies are those in which other companies have significant influence. This “significant influence” amounts to ownership of at least 20% shares of the associate company.