The growth of economy and increase in the complexity of various business operation have

augmented the scope to classify the companies in various titles. This Article is reflecting upon the
existing and proposed companies under various legislation and tries to identify the various kinds of
companies which are in existence and it has also included those companies which have been proposed
under the companies Bill, 2011. It further discuss about the scope and regulatory framework of such
companies. This Article vividly describes all the possible mode of classifying companies. The main
purpose of classification of companies is to maintain the homogeneity and apparently regulate those
companies with similar legal framework. Introduction The word „Company‟ has no strictly technical
or legal meaning1.The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or
together" and 'Pains' meaning "bread". Originally, it referred to a group of persons who took their meals
together. A company is nothing but a group of persons who have come together or who have
contributed money for some common purpose and who have incorporated themselves into a distinct
legal entity in the form of a company for that purpose. In generalized term, Company is an artificial
person created by law and destroyed by law. It is an association of person to start a business under a
legal guidance. The Precise definition of country varies from country to country. Companies,
whether public or private, are an indispensable part of an economy. They are the modes through
which a country grows and expands worldwide. Their performance is an important parameter of a
countries economic position. *3rd Year, Int. B.A LL.B(Hons.) , University
of Petroleum and Energy Studies 1 Buckley J in Stanley Re,(1906) 1 Ch 131,134

Page 2 Lord Justice Lindley2 defined company as” an association of many persons who contribute
money or money‟s worth to a common stock and employ it for a common purpose. The common stock
so contributed is denoted in money and is the capital of the company. The persons who contribute it or
to whom it belongs are members. The proportion of capital to which each member is entitled is his
share. In the terms of the Companies Act, 1956 “Company means a company registered under this act3.
In common Law, a company is a “legal person or „legal entity‟, separate from and capable of
surviving beyond the lives of its members.4” In modern times the functioning of companies has assumed
a new role in society5.It has become the most dominant form of business organization6. It is now
accepted on all hands, even in predominantly capitalist countries that a company is not a property. The
traditional view that a company is the property of its shareholders is now an exploded myth. A
company, according to the new socio-economic thinking, is a social institution having duties and
responsibilities towards the community in which it functions7. Classification of Companies The
corporate form can take many shapes in order to respond efficiently to the environment. Company
Law should therefore recognize a multiple classification of companies. The criteria for classification on
the basis of the forms is discernible but recognizes that such classification can never be exhaustive. It is
necessary to recognize the potential for diversity in the forms of companies and rather than seeking
to regulate specific aspects of each form, seek to provide for principles that enable economic inter-
action for wealth creation on the basis of clear and widely accepted principles. I. On the Basis of Mode
of Incorporation, Companies can be classified into three categories. 2
He was a prolific author widely known for his work on Partnership and company. 3 § 3(i) of Companies
Act,1956 4 Salomon v. Salomon & Co.,[1895-99] All ER Rep 33. See also, Graf Evans: what is a Company
(1910) 26 LQR 259 5 Dr. N.V. Paranjape,”COMPANY LAW”,(4th Edn.,2010),Central Law Agency,
Allahabad at p.35 6 Lee Loevinger,”The Law of Free Enterprise”, (1949) at p.59 7 P.N. Bhagwati CJI in
National Textile Worker‟s Union v. P.R. Ramkrishnan AIR 1983 SC 759 commented upon the new
dimenstions of companies.

Page 3 Chartered Company: A Company is incorporated by a charter granted by Monarch and is

regulated by that charter. The powers and nature of business of a chartered company are defined by the
charter which incorporates it. A chartered company has wide powers. It can deal with its property and
bind itself to any contracts that any ordinary person can. In case the company deviates from its
business as prescribed by the charted, the Sovereign can annul the latter and close the company. Ex.-
East India Company came into being by the grant of a Royal Charter. Such Companies does not exist in
India now. Statutory Company: A Company which is created by a Special Act of the Legislature and is
governed by the provisions of that Act. Such companies do not have any memorandum or articles
of association. They derive their powers from the Acts constituting them and enjoy certain powers
that companies incorporated under the Companies Act have. Alternations in the powers of such
companies can be brought about by legislative amendments. The provisions of the Companies Act shall
apply to these companies also, except in so far as provisions of the Act are inconsistent with those of
such Special Acts8. These companies are generally formed to meet social needs and not for the purpose
of earning profits. Ex.- State Bank of India , Industrial Finance Corporation of India are Statutory
Companies. Registered Company: A Company brought into existence by registration of certain
documents under the Companies Act,1956. Such companies come into existence only when they
are registered under the Act and a certificate of incorporation has been issued by the Registrar of
Companies. This is the most popular mode of incorporating a company. Registered companies may
further be divided into three categories on the basis of liability. i) Companies limited by Shares : The
main attribute of limited companies which attracts the investors is limited liability of the share-holders.
The Liability does not fluctuate but limited to the extent of the unpaid value of such shares9. These
types of companies have a share capital and 8 §. 616 (d) of Companies
Act,1956 9 Supra, note 5 at p.60

Page 4 the liability of each member or the company is limited by the Memorandum to the extent of
face value of share subscribed by him. The amount remaining unpaid on the share can be called up at
any time during the lifetime of the company or at the time of winding up10. In other words, during
the existence of the company or in the event of winding up, a member can be called upon to pay the
amount remaining unpaid on the shares subscribed by him. Such a company is called company limited
by shares. A company limited by shares may be a public company or a private company. These are the
most popular types of companies. The Supreme Court has emphasized that the right of a guarantee
company to refuse to accept the transfer by a member of his interest in the company is on a different
footing than that of a company limited by shares. ii) Companies Limited by Guarantee: These types of
companies may or may not have a share capital. But if it has share capital , it is subject to the same
restriction as to reductions as the capital of a company limited by shares11.Each member promises to
pay a fixed sum of money specified in the Memorandum in the event of liquidation of the company
for payment of the debts and liabilities of the company12.This amount promised by him is called
„Guarantee‟. The Articles of Association of the company state the number of member with which the
company is to be registered13.Such a company is called a company limited by guarantee14. Such
companies depend for their existence on entrance and subscription fees. The liability of the member is
limited to the extent of the guarantee and the face value of the shares subscribed by them, if the
company has a share capital. If it has a share capital, it may be a public company or a private company.
The amount of guarantee of each member is in the nature of reserve capital. This amount cannot be
called upon except in the event of winding up of a company. Non-trading or non-profit companies
formed to promote culture, art, science, religion, commerce, charity, sports etc. are generally formed as
companies limited by guarantee. 10 S.S. Gulsan, “COMPANY
LAW”,(2nd Edn,2009),Excel Books, New Delhi at p.34 11 § 100 of Companies Act,1956 12 § 13(3) of
Companies Act,1956 13 § 27 (2) of Companies Act,1956; Rajeev Kwatra v. Sunil Khanna,(2006) 129
Comp Cas 373 CLB 14 Supra Note 5 at p.60

Page 5 iii) Unlimited Companies : Section 12 gives choice to the promoters to form a company with or
without limited liability15. A company not having any limit on the liability of its members is called an
„unlimited company‟16.The right of limited liability is desirable, but not a necessary adjunct to
incorporation17. An unlimited company may or may not have a share capital. If it has a share capital it
may be a public company or a private company. If the company has a share capital, the article shall
state the amount of share capital with which the company is to be registered18.The articles of an
unlimited company shall state the number of member with which the company is to be registered19.
Section 77 does not apply to the case of an unlimited company20. The main disadvantage of an
unlimited company is that its members are liable like the partners of a firm for all its trade debts without
any limit .But still, the creditors cannot directly sue the members. II. On the basis of number of
members a company can be classified as : 1.One person company: With increasing use of
information technology and computers, emergence of the service sector, it is time that the
entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such
economic activity may take place through the creation of an economic person in the form of a
company. Yet it would not be reasonable to expect that every entrepreneur who is capable of
developing his ideas and participating in the market place should do it through an association of
persons. We feel that it is possible for individuals to operate in the economic domain and
contribute effectively. To facilitate this, the Committee recommends that the law should recognize
the formation of a single person economic entity in the form of „One Person Company‟21.
15 § 12 of Companies Act,1956:Mode of forming incorporated company 16 § 12(c) of Companies
Act,1956 17 Leonard W. Hein, ”British Business Corporation: Its Origin and Control”,(1963-64) 15
Toronto Law Journal 134 18 § 27 (1) of Companies Act,1956 19 Id. 20 § 77 contains restriction on
purchase by a limited company of its own or its holding company‟s share. 21 “Report of the expert
committee on company law” available at http://www.mca.gov.in/Ministry/chapter3.html Last updated
on 16th Nov,2012

Page 6 One Person Company means a company which has only one person as a member22. Though
new in India, OPC's are in existence in quite a few countries across the world, notably China23. It is a
one shareholder corporate entity, where legal and financial liability is limited to the company only. The
One Person Company will be formed as a private limited company. The words „„One Person Company‟‟
shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed
or engraved24. Where an OPC enters into a contract with the sole member of the company who is
also a director, the company should, unless the contract is in writing, ensure that the terms of the
contract or offer are contained in the memorandum or are recorded in the minutes of the first Board
meeting held after entering into the contract and every such contract should be informed to the
Registrar25. It was an effort of JJ Irani Expert Committee who recommended for the formation of one-
person company (OPC). It has suggested that such an entity may be provided with a simpler legal
regime through exemptions so that the single entrepreneur is not compelled to fritter away time,
energy and resources on procedural matters. At present, an entrepreneur in India has to find another
person to implement his skills through incorporation of a company while in the UK, Australia, Singapore,
Pakistan, etc, a single person can form a company26. 2. Private company :A private company is that
company which by its articles of association limits the number of its members to fifty, excluding
employees who are members or ex-employees who were and continue to be members; restricts the
right of transfer of shares, if any; prohibits any invitation to the public to subscribe for any shares or
debentures of the company27. Where two or more persons hold share jointly, they are treated as a
single member. According to, the minimum number of members to form a private company is two28. A
private company must 22 Clause 2(62) of the Companies Bill, 2011 23
Mohan R . Lavi ,”The One-Person Company Concept” available at
http://www.thehindubusinessline.com /industry-and-economy/taxation-and-
accounts/article2686921.ece accessed on 17th Nov,2012 24 Proviso to Clause 12(3) of the Companies
Bill,2011 25 Supra, note 23 26 Preeti Malhotra,” One-person company is a great prospect for lone
entrepreneur” available at http://articles. economictimes.indiatimes.com/2007-12-
26/news/27683483_1_nominee-director-opc-entrepreneur accessed on 17th Nov, 2012 27 § 3(1) (iii) of
Companies Act, 1956 28 § 12 of Companies Act ,1956

Page 7 use the word “Pvt” after its name. Private companies represent a different set of relationships
in terms of ownership, risk and reward as compared to public companies29. A Private Company has
been described as an incorporated partnership, combining the advantages of the privacy of
partnership and the permanence and origin of the corporate constitution. Private Companies can
keep their affairs to themselves30.Private Companies exist with the sanction and encouragement of
the Legislature31. They enjoy the benediction of the Legislature. Characteristics or Features of a
Private Company. The main features of a private of a private company are as follows : i) A private
company restricts the right of transfer of its shares. The shares of a private company are not as freely
transferable as those of public companies. The articles generally state that whenever a shareholder of a
Private Company wants to transfer his shares, he must first offer them to the existing members of the
existing members of the company. The price of the shares is determined by the directors. It is done so as
to preserve the family nature of the company‟s shareholders. ii) It limits the number of its members to
fifty excluding members who are employees or ex-employees who were and continue to be the
member. Where two or more persons hold share jointly they are treated as a single member. The
minimum number of members to form a private company is two. iii) A private company cannot invite
the public to subscribe for its capital or shares of debentures. It has to make its own private
arrangement. Private Company can also be broadly classified as: a) Purely Private Company32 ,and b)
Private Company which is a subsidiary of a company which is not a private Company33.
29 Supra ,note 21 30 Edward Manson, ”The Evolution of the Private Company”,(1910) 26 LQR 11 31
Younger LJ in Commr of Indian Revenue v. Sansom,[1921] 2 KB 492 32 § 3(1) (iii) of Companies Act,
1956 33 § 3(1)(iv)(c) of Companies Act,1956

Page 8 3. Public companies: A company which is not a private company and has minimum paid up
capital of 5 lakh rupees or more, or a private company which is a subsidiary of a company which is not a
private company34.Public company may be said to be an association consisting of not less than seven
members, which is registered under the Companies Act and which is not a private company within the
meaning of the Act. The shares and debentures of a public company may be listed on a Stock Exchange
and are offered to public for sale35. There is no restriction on transfer of shares in case of public
company. A Public Company having a share capital shall file with the Registrar a statement in lieu of
prospectus signed by all the directors named therein, in case it has not issued a prospectus36. A Public
company cannot commence its business unless certificate to commence business is issued by the
Registrar of Companies in accordance with Section 149 of the Companies Act. Deemed Public Company:
Section 43-A of the Act deals with circumstances where a private company is deemed to be a public
company. A Private Company may continue to retain the provisions as required under Section 3(1)(iii)
of the Act and the number of its members may also be reduced below seven37. It is for this reason the
supreme Court stated that a deemed public company is neither a private company nor a public
company but company in third category38. Even, The Company Law Board (CLB) in Hillcrest Realty Sdn.
Bhd v. Hotel Queenroad (P) Ltd.39held that the basic characteristics of a private company do not get
altered by the mere fact that such a company is a subsidiary of a public company. Though, Section 43-A
has been omitted but Section 43-A Sub-section (2-A) still subsist after the Amendment made in the year
2000.This provision states that when a deemed public company becomes a private company after this
amendment, the company has to inform the Registrar and latter would make necessary changes in his
records. This process needs to be completed within 4 weeks from the date of the company‟s
application. 34 § 3(1)(iv) of Companies Act,1956 35 Supra, note 5 at
p.65 36 § 70 of Companies Act,1956 37 Supra, note 5 at p.65 38 Needle Industries(India) Ltd. v. Needle
Industries Newey(India) Holding Ltd.,AIR 1981 SC 1298 39 Hillcrest Realty Sdn.Bhd vs Hotel Queenroad
(P) Ltd [(2006) 72 CLA 245 CLB]

Page 9 III. On the basis of membership pattern and manner of access to capital , Public Companies can
further classified as: • Listed Company: Company whose shares are traded on an on an official stock
exchange40. It means a public company which has its securities listed on any recognized stock
exchange41.A company is said to be “listed” ,”quoted” or “have a listing” if its shares can be traded on a
stock exchange. It is also known as Quoted Company42. It must adhere to the listing requirements of
that exchange, which may include how many shares are listed and a minimum earnings
level43.After the amendment made in the year 200044, every list company making initial public offer of
any security for a sum of rupees ten crores or more, shall issue the same only in dematerialized
form by complying with the requisite provisions of the Depositories Act, 1996. A listed public company
may, and in the case of resolutions relating to such business as the Central Government may, by
notification, declare to be conducted only by postal ballot, shall, get any resolution passed by means
of a postal ballot, instead of transacting the business in general meeting of the company45. •
Unlisted Company: A Public company whose shares are not on the official list of shares traded on a
particular stock market46. A publicly unlisted company is a company that can have an unlimited
number of shareholders to raise capital for any commercial venture. Companies which are not listed
publicly are more likely to engage in profit maximizing behavior as their share capital structure makes
it very easy to give its members financial returns. Unlisted companies are usually too small to
qualify for a stock exchange listing, and do not usually advertise for investors47. However they tend
to be larger than companies limited by guarantee. Unlisted companies are very small and do not trade
on an exchange because they do not meet 40 “Financial Times
Lexicon” available at http://lexicon.ft.com/Term?term=listed-company accessed on 15th Nov,2012
41 Supra, note 10 at p.36; also, § 2(23A) of companies Act,1956 available at http://www.mca.gov.in
/Ministry/ pdf/Companies_Act_1956_13jun2011.pdf accessed on 18th Nov,2012 42 Graeme Pieters,
”Listed Company”, available at http://moneyterms.co.uk/ accessed on 15th ,Nov,2012 43 Supra, note 5
at p.40. 44 Insertion of § 68 B in Companies Act,1956 45 § 192 A of Companies Act,1956:inserted by
Companies (Amendment) Act,2000 w.e.f 13-12-2000 46 Longman Business English Dictionary,available
at http://lexicon.ft.com/Term?term=unlisted-company accessed on 15th Nov,2012 47 “What is an
Unlisted Public Company?” available at http://www.companyplanners.com.au/faqs/unlisted.shtml
accessed on 15th Nov,2012.

Page 10 market capitalization requirements. The Government of India have passed the Unlisted Public
Companies Amendment Rules, 2011 for the preferential allotment in the unlisted public
companies48. IV. On the basis of Control over the management, Companies may be classified into: 1.
Holding companies, and 2. Subsidiary Company 1. Holding Company:A company is known as the holding
company of another company if it has control over the other company. A company qualifies as a
holding company when it has the power to control the composition of the board of directors of
another company or holds a majority of its shares. According to Sec 4(4) a company is deemed to be
the holding company of another if, but only if that other is its subsidiary. A company may become a
holding company of another company in either of the following three ways:- a) By holding more than
fifty per cent of the normal value of issued equity capital of the company; or b) By holding more
than fifty per cent of its voting rights; or c) By securing to itself the right to appoint, the majority of the
directors of the other company, directly or indirectly. The other company in such a case is known as
a “Subsidiary company”. Though the two companies remain separate legal entities, yet the affairs of
both the companies are managed and controlled by the holding company. A holding company may have
any number of subsidiaries. The annual accounts of the holding company are required to disclose full
information about the subsidiaries. A Holding Company is not allowed to interfere in the disinvestment
decision of a sub-subsidiary company even if one of the effect of disinvestment could have been the
loss of position as a Holding company49. 48 Unlisted Public Companies
Amendment Rules, 2011 published in the Gazette of India, Extraordinary -PARTI I , SECTION-3, SUB SECTI
ON (i) of dated the 14.12.2011) 49 BDA Breweries v. Cruickshonk & Co. Ltd,(1996) 85 Comp Cas 325
Bom.
 Page 11 2. Subsidiary Company: A company is known as a subsidiary of another company when its
control is exercised by the latter (called holding company) over the former called a subsidiary
company50. Where a company (company S) is subsidiary of another company (say Company H), the
former (Company S) becomes the subsidiary of the controlling company (company H).It is a company
whose parent is a majority shareholder51. For the purposes of liability, taxation and regulation,
subsidiaries are distinct legal entities. A Subsidiary company may lose its separate identity to a certain
extent in two cases. Firstly, the Legislature may brush aside the legal forms and require the companies in
a group to present a joint picture. Thus, Section 212-14 contain provisions “designed primarily to
give better information of the accounts and financial position of the group as a whole to the
creditors, shareholders and public.52 Secondly, the Court may on the facts of case refuse to grant
a subsidiary company an independent status. “It may not be possible to put in a straitjacket of
judicial definition as to when the subsidiary company can really be treated as a branch, or an agent , or
a trustee of the holding company. Circumstances such as the profits of the subsidiary company being
treated as those of the parent company, the control and conduct of business of the subsidiary
company resting completely in the nominees of the holding company”53. 3. Associate Company:
Associate is used synonymously to describe a company whose parent only possesses a minority stake in
the ownership of the company54. V. On the basis of Ownership of companies a) Government
Companies. A Company of which not less than 51% of the paid up capital is held by the Central
Government of by State Government or Government singly or jointly is known as a Government
Company55. It includes a company subsidiary to a government 50
§ 4 (I) of Companies Act,1956 51 Albert Phung is a writer and analyst for Investopedia.com.He
discussed it in FAQ.available at http://www .investopedia.com/ask/ answers
/06/subsidiaries.asp#ixzz2CG5KN54W accessed on 15th Nov,2012 52 Avtar Singh, “COMPANY
LAW”,(15th Edn,2009).Eastern Book Company , Lucknow at P.29 . See also, Liability of a Corporation for
Acts of a Subsidiary or Affiliate,(1958) 71 Harv L R 1122 53 Kapur .J in Freewheels(India) Ltd. v. Dr. Veda
Mitra, AIR 1969 Del 258 54 Id. 55 § 617 of the Companies Act,1956

Page 12 company. The share capital of a government company may be wholly or partly owned by the
government, but it would not make it the agent of the government56.The staff members of the
company are not the Government employees and hence, the Government is not liable to pay the salary
of the staff of a Government Company57.The auditors of the government company are appointed by
the government on the advice of the Comptroller and Auditor General of India58. The Annual Report
along with the auditor‟s report is placed before both the House of the parliament.59 Hitting the
reality of the situation, Krishna Iyer .J remarked “The true owner is the state and the effective
collectorate is the state and the accountability for actions to the community and to Parliament is of
the state. Nevertheless a distinct juristic person with a corporate structure conducts the
business.”60 Some of the examples of Government companies are - Mahanagar Telephone Corporation
Ltd., National Thermal Power Corporation Ltd., State Trading Corporation Ltd. Hydroelectric Power
Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine Tools Ltd. etc. b) Non-Government
Companies. All other companies, except the Government Companies, are called non-government
companies. They do not satisfy the characteristics of a government company as given above. Some
of the example of Non-Government Companies are- Reliance Industries Limited, WIPRO Limited etc.
VI. On the basis of Nationality of the Company 56 Heavy Engineering
Mazdoor Union v. State of Bihar, AIR 1970 SC 82; Central Inland Water Transport Corporation
Ltd. v. Brojo Nath Ganguly , AIR 1986 SC 1571:It was stated if there is an instrumentality of agency of the
state which has assumed the garb of a Government Company, it does not follow that it thereby ceases
to be an instrumentality of agency of the state. 57 A.K Bindal V. Union of India , (2003) 5 SCC 163 58 §
619(2) of the Companies Act,1956 59 § 619 A of the Companies Act,1956 (Inserted by Act 65 of 1960, §
200 (w.e.f 28-12-1960) 60Supra, note 52 at p.22

Page 13 a) Indian Companies: These companies are registered in India under the Companies Act. 1956
and have their registered office in India. Nationality of the members in their case is immaterial. b)
Foreign Companies: It means any company incorporated outside India which has an established
place of business in India61. The Court has considered the extent of business which has to be carried
on to make “a place of business” for the purpose to establish a sufficient presence within the
jurisdiction for service of process62. A company has an established place of business in India if it has a
specified place at which it carries on business such as an office, store house or other premises with some
visible indication premises. Section 592 to 602 of Companies Act, 1956 contain provisions applicable to
foreign companies functioning in India. The Companies (Amendment) Act,1974 reduced section 591
into Section 591(1) and inserted sub-section (2).The effect of the amendment is that in the case of a
foreign company having a place of business in india, if 51 % of the paid-up share capital , whether
preference or equity is in Indian hands, it shall have to comply with such of the provisions of the Act as
may be prescribed as if it were a company incorporated in India63. VII. On the basis of size: Small
companies : A small company is a company other than public company that has a paid-up capital not
exceeding fifty lakh rupees or such higher amount as may be prescribed which shall not be more than
five crore rupees64. Such companies should also be subjected to reduced financial reporting and
audit requirements and simplified capital maintenance regimes. Essentially the regime for small
companies should enable them to achieve transparency at a low cost through simplified requirements.
Such a framework may be applied to small companies through exemptions, consolidated in the form of
a Schedule to the Act65. It has been stated by the expert committee that a small company should
however neither be a holding nor a subsidiary of any other company. However, the Committee does not
feel the need for providing a special internal governance and constitutional regime to small companies.
This is likely to come in the 61 § 591 (I) of Companies Act,1956 62 A.S.
Dampskib „Hercules‟ v. Grand Trunk Pacific Rly o. [1912] 1 KB 222. 63 Supra, note 52 at p.596 64 Clause
2(85) of Companies Bill,2011 65 Supra, note 21 at Chapter 3, ¶ 4.1

Page 14 way of their future growth. Instead the Committee recommends enabling of new vehicles
for business, such as Limited Liability Partnerships, through separate legislation, if necessary66.
Associations, Charitable Companies etc. licensed u/s 25 of the existing Companies Act, should not be
treated as small companies irrespective of their gross assets67. The law should provide a framework
compatible to growth of small corporate entities. Exemptions should however facilitate compliance
by small companies in an easy and cost effective manner. These should not incentivize concealment of
true size by any entity or be a barrier to growth of small companies68. However, public limited
companies cannot qualify to be small companies. Other companies: All companies other than small
companies are included under other companies. It is irrespective that the particular companies are
Private or Public, listed or unlisted, limited or unlimited, Government or Foreign Companies. VIII. On
the basis of business activities undertaken: Company is a form of business organizations in which the
individuals contribute some amount of capital69. The Companies Act, 1956 broadly classifies the
companies into private and public companies and provides for regulatory environment on the basis of
such classification. However, with the growth of the economy and increase in the complexity of business
operation, the forms of corporate organizations keep on changing. Classification of Companies can
therefore take many shapes and a multiple classification of companies can be made. 1. Section 25
Companies70: Section 25 Companies are companies formed for solely promoting art, commerce,
science, literature, charity, religion and other useful objects71. It is to be granted a license by the Central
government recognized for such purpose. It is required to apply its profits only for promoting its objects
and for other purposes. It is not required to pay dividend out of its 66
Id. at ¶ 4.3 67 Id. at ¶ 4.4 68 Id. 69 Alok Patnia, ”Section 25 Companies under Companies
Act,1956” available at http://taxmantra.com/2012/05/ section-25-companies-in-the-companies-act-
1956/ accessed on 17th Nov,2012 70 List of Section 25 Companies are available at
http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/ Section25 Companies.pdf Last updated on
16th Nov,2012 71 § 25 (1) (a)of Companies Act,1956

Page 15 profits to its members72. Due to better laws, Section 25 companies have the most
reliable strongest organizational structure. The advantages of these companies are that a partnership
firm is allowed to be its members73. There is a minimum requirement of share capital in comparison to
other Companies. Publication of name is not necessary. It can increase the no. of directors without
obtaining prior permission from Central Government. If articles of Sec 25 Companies provide for
election of directors by ballot then provisions of Sec 257 does not apply to them. It can appoint any
person as Secretary as they thinks fit. Members of a charitable company under section 25 have been
granted the right of inspection by clause 9 of Annexure 1 to the Companies Regulations, 195674. 2.
Producer Companies: With the coming into force on February 6 of the Companies (Amendment)
Act 2002, (1 of 2003), another category, `producer companies,' finds a place in the Companies
Act,195675.Part IX A of the Companies Act,1956 explicitly deals with the Producer Company. It is based
on the recommendations of an expert committee led by noted economist, Y. K. Alagh. Producer
company is to indicate that only certain categories of persons can participate in the ownership of
such companies. The members have necessarily to be `primary producers,' that is, persons engaged in
an activity connected with, or related to, primary produce. Primary Produce is a produce of farmers
arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture,
forestry, forest products, re-vegetation, bee raising and farming plantation products: produce of
persons engaged in handloom, handicraft and other cottage industries: by - products of such products;
and products arising out of ancillary industries76. Producer Company means a body corporate having
objects or activities specified in section 581B and registered as Producer Company under the
Companies Act, 195677. The disadvantages of Producer Company is that The administration and
management of „Producer Companies‟ is not in tune with general framework for companies with
liabilities limited by shares/guarantees. The shareholding of a „Producer Company‟ imposed
restrictions on its transferability, thereby preventing the shareholders from exercising their exit options
through a 72 §§ 25 (1) (b) and 3 of Companies Act,1956;also see
ADRBM Mandal v. Joint Charity Commr,(1973) 43 Comp Cas 361 Bom.Western UPchamber of Commerce
& Industry has been granted licence under this section. 73 § 25(4) of Companies Act,1956 74 Supra, note
52 at p.443 75 GSR No 135(E) : The Companies (Amendment) Act ,2002 (w.e.f 6-2-2003) 76 § 581A (j) of
Companies Act,1956 77 Id.

Page 16 market determined structure. It was also not feasible to make this structure amenable
to a competitive market for corporate control and the Corporate Governance regime applicable to
companies could not be properly imposed on this form78. 3. Investment Companies: It is a company
whose principal business is the acquisition of shares ,stock, debentures or other securities79.The
Department of Company Affairs has clarified the position of an investment company further and
observed that whether a company is an investment company or not, is a question of fact which has
to be decided in relation to the actual business transacted by the company80.The word “whose principal
business is the acquisition of shares” implies that the company concerned is expected to hold shares
etc. acquired by it for a reasonable time .In substance, if the whole or substantially whole of the
company‟s business relates to shares, securities, stock and debentures etc. it should be treated as
an investment company. 4. FERA Companies: The Companies operating in India under the Foreign
Exchange Regulation Act, 1973 are technically called the FERA Companies. They broadly fall under
following categories: Indian Companies having no foreign interests or having less than 40 percent
foreign interest, Indian Companies having more than 40 percent non-resident interest81 and Foreign
incorporated companies which are registered in India merely for business operations. The Central
Government may impose certain restrictions on FERA Companies under Section 26 of the Foreign
Exchange Regulation Act ,1973. 5. Chit Fund Companies82:Chit fund company means a company
managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in
Section 2 of the Chit Funds Act, 198283. The main objective of Chit Fund company is to carry on the
business of conducting chits (auction and other chits) daily, weekly, by-weekly, monthly, quarterly and
are such intervals as the company may decide from time to time and to lend money either with or
78 Supra, note 21 , at Chapter 3, ¶ ¶ 9.1 and 9.2 79 Proviso to § 372(10) of Companies Act,1956 80
Supra, note 5 at p.73 81 Such companies were earlier known as “Foreign Controlled Companies”. 82 List
of Chit Fund Companies are available at
http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_ FundCompanies.pdf Last updated on
16th Nov,2012 83 § 2(1)(h) of Prevention of Money Laundering Act,2002 available at
http://fiuindia.gov.in/pmla-section2.htm accessed on 17th Nov,2012

Page 17 without security upon such terms and conditions as the company may think fit to the
subscribers of the chits and to guarantee the performance of the contract by any such person84. 6.
Non-Banking Finance Companies85: A Non-Banking Financial Company (NBFC) is a company
registered under the Companies Act, 1956 and is engaged in the business of loans and advances,
acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or
other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but
does not include any institution whose principal business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property. A non-banking institution which is a company and
which has its principal business of receiving deposits under any scheme or arrangement or any other
manner, or lending in any manner is also a non-banking financial company86. Non-banking financial
companies (NBFCs) are fast emerging as an important segment of Indian financial system. It is an
heterogeneous group of institutions (other than commercial and co-operative banks performing
financial intermediation in a variety of ways, like accepting deposits, making loans and advances,
leasing, hire purchase, etc. They raise funds from the public, directly or indirectly, and lend them to
ultimate spenders. They advance loans to the various wholesale and retail traders, small-scale
industries and self-employed persons. Thus, they have broadened and diversified the range of products
and services offered by a financial sector. Gradually, they are being recognised as complementary to the
banking sector due to their customer-oriented services; simplified procedures; attractive rates of
return on deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc87.
Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit taking
company. This registration authorises it to conduct its business as an NBFC. For the registration with
the RBI, a company incorporated under the Companies Act, 1956 and desirous of commencing business
of non-banking financial institution, should have a minimum net owned fund (NOF) of Rs 25 lakh (raised
to Rs 200 lakh w.e.f April 21, 1999). 84 Prize Chits and Money
Circulation Schemes (Banning) Act, 1978. 85List of NBF Companies are available at
http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies. pdf Last updated on 16th
Nov,2012 86 “Frequently Asked Questions on NBFCs” available at
http://www.rbi.org.in/scripts/FAQView.aspx?Id=71 accessed on 17th Nov,2012 87 Business Financing,
”Non-Banking Finance Companies(NBFCs)” available at http://business.gov.in/business
financing/non_banking.php accessed on 17th Nov,2012

Page 18 As per the RBI Act88, a 'non-banking financial company' is defined as:- (i) a financial
institution which is a company; (ii) a non banking institution which is a company and which has as its
principal business the receiving of deposits, under any scheme or arrangement or in any other manner,
or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the
bank may, with the previous approval of the Central Government and by notification in the Official
Gazette, specify. 7. Plantation Companies89: Plantation Companies issue agro bonds and other deposit
schemes at high rates of interest and promise to produce and market plantation products.
Plantation companies have for long operated in a regulatory vacuum. They raise money and invest in
agriculture and related activities. Since, They are not non-banking finance companies, they are not
under the ambit of the Reserve Bank of India (RBI). They raise money that is not defined as deposits,
hence they are not regulated by the Department of Company Affairs (DCA) and since the money raised
is not invested in securities, they do not come under SEBI's purview. So, there was no government
regulatory agency aggrieved investors could turn to in case the companies defaulted90.But later on,
the Government decided to regulate these schemes as “Collective investment schemes” coming
under the provisions of section 11(2)(c) of the SEBI Act91. There is a great potential for plantation
companies in Green Business in India. 8. Dormant Company: Through the insertion of Dormant Company
under the Companies Bill, 2011, the Ministry of corporate Affairs have taken step to designate a
company as dormant company. A Dormant company will enjoy a number of relaxations and they can
revert to a full fledged company once they apply for it. Dormant companies can be used for holding
patents, trademarks, copyrights, designs, other rights and intellectual properties. Many prospective
entrepreneurs such as scientists with their research products, artists with their registered artwork,
singers with their music compilations, authors with their books can think of starting their own
companies to hold these intellectual properties and they can get their company designated as a
88 §45-I(f) of the RBI Act, 1934 89 List of Plantation Companies are available at
http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/ Plantation_Companies.pdf Last updated on
16th Nov,2012 90 V Shankar Aiyar,” A slow-moving administration and a toothless SEBI have failed to
check fraudulent plantation companies”, India Today,Nov 2nd ,1998 available at
http://archives.digitaltoday.in/indiatoday/02111998/biz.html accessed on 17th Nov,2012 91 SEBI
Act.1992-§ 11(1) (c) registering and regulating the working of collective investment schemes, including
mutual funds.

Page 19 dormant company. When a dormant company comes to a position to do business as a

normal company they can apply to get re-designated as a fully fledged company92. A company is
considered dormant during a period in which no accounting transaction occurs93. Where a company is
formed and registered under the Act for a future project or to hold an asset or intellectual property and
has no significant accounting transaction, such a company or an inactive company may make an
application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant
company.94 9. Nidhi Companies : The First committee which studies the functioning of the Nidhi
Company was Viswanatha Shastri Committee in 1965, it was followed by various other
committees95. Nidhi company is a company registered under Companies Act and notified as a
“Nidhi company” or “Mutual Benefit Society by the Central Government96. It is a non-banking finance
company doing the business of lending and borrowing with its members or shareholders. Chapter XXVI
of the Companies Bill 2011 defines “Nidhi” as a company which has been incorporated as a Nidhi
with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits
from, and lending to, its members only, for their mutual benefit, and which complies with such rules as
are prescribed by the Central Government for regulation of such class of companies.97 Though
Sabanayagam Committee Report on Nidhis98 had suggested following definition as “Nidhi is a
company formed with the exclusive object of cultivating the habit of thrift, savings and functioning for
the mutual benefit of members by receiving deposits only from individuals enrolled as members and by
lending only to individuals, also enrolled as members, and which functions as per Notification and
Guidelines prescribed by the DCA. The 92 Anjan Kumar Roy, Corporate
Law Advisor,ANJAN KUMAR ROY & CO. Company Secretaries,”Company Bill , 2009 The Impact,
available at http://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-
to.html accessed on 17th Nov,2012 93 “Dormant Companies” available at
http://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal
Company/Dormant+Companies.htm Last updated on 15th Sept,2009 94 Clause 455 of the Companies
Bill 2011 95 “Sabanayagam Comt. Report on Nidhis” available at
http://www.mca.gov.in/Ministry/nidhi.html Last accessed on 17th Nov,2012 96 § 620-A of Companies
Act,1956 97 Bill No. 121 of 2011,
http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf accessed on 14th Nov,2012 98
“REPORT OF SABANAYAGAM COMMITTEE ON NIDHIS” Central Government vide Notification
No.5/7/2000-CL.V dated 23rd March,2000 available at
http://www.mca.gov.in/Ministry/nidhi/reportsaba.pdf

Page 20 word Nidhi shall not form part of the name of any company, firm or individual engaged in
borrowing and lending money without incorporation by DCA and such contravention will attract penal
action.” The primary object of Nidhis has been to carry on the business of accepting deposits and
lending money to member-borrowers only against jewels, etc., and mortgage of property. Nidhis were
not expected to engage themselves in the business of Chit Fund, hire purchase, insurance or in any
other business including investments in shares or debentures. As stated these Nidhis do their business
only with Members. Such Members are only individuals .Bodies Corporate or Trusts are never to be
admitted as Members99. 10. Companies Regulated by Special Acts: The Companies which are regulated
by Special Acts such as the Banking Companies Act,1949; the Insurance Companies governed by
the Insurance Act,1938;Electricity (Supply) Act,1948;Food Corporation Act,1964 etc. shall have to be
incorporated and registered under the Companies Act and therefore the provisions of the
Companies Act,1956 shall also apply to them like any other company except insofar as they are
inconsistent with the Special Act which constitutes them100. Need for Classification of Companies
Classification refers to recognizing, naming, and describing units or elements to be mapped. The
objective of all classifications is the orderly arrangement of a large array of objects so that their
differences and similarities can be better understood. We classify land and water resources for any
number of reasons, including: Separating like things from unlike things by increasing homogeneity.
This in turn increases accuracy in classification and decreases sampling effort. Setting the boundaries
of a study area or an area we hope to influence. Looking for identifiable patterns or identifying spatial
context and allowing extrapolation. It aids in the development of restoration endpoints by developing
identifiable and compatible classes within the classification. Displaying or communicating complex
relationships more effectively for planning, restoration, and management.
99 “Sabanayagam Comt. Report on Nidhis” available at http://www.mca.gov.in/Ministry/nidhi.html
accessed on 17th Nov,2012 100 Supra, note 5 at p.75

Page 21 The Companies Act, 1956 broadly classifies the companies into private and public companies
and provides for regulatory environment on the basis of such classification. However, with the growth
of the economy and increase in the complexity of business operation, the forms of corporate
organizations keep on changing. There is a need for the law to take into account the requirements of
different kinds of companies that may exist and seek to provide common principles to which all
kinds of companies may refer while devising their corporate governance structure. Rigid structures,
unnecessary controls and regulations inhibit the risk taking initiatives of the entrepreneurs. Private
companies and small companies, who do not generally go for public issues or deposits for their financial
requirements but utilize their personal or in-house resources, need to be given flexibility and freedom
of operation and compliance at a low cost. Equally, public companies that access capital from public
need to be subjected to a more stringent regime of corporate governance. To enable a comprehensive
framework for different forms of corporate organizations, the Company Law should ensure multiple
classifications of companies. It should also enable smooth change-over of companies from one type to
another101. The law should recognize the potential for diversity in the forms of companies and rather
than seeking to regulate specific aspects of each form, seek to provide for principles that enable
economic inter-action for wealth creation on the basis of clear and widely accepted principles1