Types of companies

Companies Act, 2013 (CA, 2013)

provides for types of companies that
can be promoted and registered under
the Act.
Firstly what does company mean?
• As per section 2(20) of the CA, 2013 “company”
means a company incorporated under this Act or
under any previous company law.
• Commonly a company may be defined as “an
incorporated association which is an artificial
person, having a separate legal entity, with a
perpetual succession, a common seal (if any), and
a common capital compromised of transferable
shares and limited liability.”
 A. Types of Company on the basis of
Incorporation
• 1. Statutory Companies :
• These companies are constituted by a special Act of
Parliament or State Legislature. These companies are
formed mainly with an intention to provide the public
services.
• Though primarily they are governed under that Special
Act, still the CA, 2013 will be applicable to them except
where the said provisions are inconsistent with the
provisions of the Act creating them (as Special Act
prevails over General Act).
• Examples of these types of companies are Reserve
Bank of India, Life Insurance Corporation of India, etc.
• 2. Registered Companies:
• Companies registered under the CA, 2013 or
under any previous Company Law are called
registered companies.
• Such companies comes into existence when
they are registered under the Companies Act
and a certificate of incorporation is granted to
it by the Registrar.
 B. Types of Company on the basis of
Liability
• 1. Companies limited by shares:
• A company that has the liability of its members limited by
the memorandum to the amount, if any, unpaid on the
shares respectively held by them is termed as a company
limited by shares.
• The liability can be enforced during existence of the
company as well as during the winding up. Where the
shares are fully paid up, no further liability rests on them.
• For example, a shareholder who has paid 75 on a share of
face value 100 can be called upon to pay the balance of 25
only. Companies limited by shares are by far the most
common and may be either public or private.
• 2. Companies limited by guarantee:
• Company limited by guarantee is a company that has the liability of
its members limited to such amount as the members may
respectively undertake, by the memorandum, to contribute to the
assets of the company in the event of its being wound-up. In case of
such companies the liability of its members is limited to the amount
of guarantee undertaken by them.
• The members of such company are placed in the position of
guarantors of the company’s debts up to the agreed amount.
• Clubs, trade associations, research associations and societies for
promoting various objects are various examples of guarantee
companies.
• 3. Unlimited Liability Companies:
• A company not having a limit on the liability of its
members is termed as unlimited company. Here
the members are liable for the company’s debts
in proportion to their respective interests in the
company and their liability is unlimited.
• Such companies may or may not have share
capital. They may be either a public company or a
private company.
 C. Types of Company on the basis of
number of members
• 1. Public Company:
• Defined u/s 2(71) of the CA, 2013 – A public company means a
company which is not a private company.
• Section 3(1) of the CA, 2013– Public company may be formed for
any lawful purpose by 7 or more persons.
• Section 149(1) of the CA, 2013 – Every public company shall
have minimum 3 director in its Board.
• Section 4(1)(a) of the CA, 2013 – A public company is required to
add the words “Limited” at the end of its name.
• It is the essence of a public company that its shares and debentures
can be transferable freely to the public unlike private company. Only
the shares of a public company are capable of being dealt in on a
stock exchange.
• A private company that is a subsidiary of a public company, will be
considered a public company.
 Private Company
• Defined u/s 2(68) of the CA, 2013 –
• A private company means a company which by its articles—
• a. Restricts the right to transfer its shares;
• b. Limits the number of its members to 200 hundred (except in case of
OPC)
• Note:
• Persons who are in the employment of the company; and persons who,
having been formerly in the employment of the company, were members
of the company while in that employment and have continued to be
members after the employment ceased, shall be excluded.
• Where 2 or more persons hold 1 or more shares in a company jointly they
shall be treated as a single member.
• Prohibits any invitation to the public to subscribe for any securities of the
company;
• Section 3(1) of the CA, 2013 – Private Company may be
formed for any lawful purpose by 2 or more persons.
• Section 149(1) of the CA, 2013 – Every Private company
shall have minimum 2 director in its Board.
• Section 4(1)(a) of the CA, 2013 – A private company is
required to add the words “Private Ltd” at the end of
its name.
• Special privileges – Private Companies enjoys several
privileges and exemptions under the Companies Act.
 3. One Person Company (OPC):

• With the enactment of the Companies Act, 2013 several new

concepts was introduced that was not in existence in Companies
Act, 1956 which completely revolutionized corporate laws in India.
One of such was the introduction of OPC concept.
• This led to the avenue for starting businesses giving flexibility which
a company form of entity can offer, while also offering limited
liability that sole proprietorship or partnerships does not offers.
• Defined u/s 2(62) of the CA, 2013 – One Person Company means a
company which has only one person as a member.
• Section 3(1) of the CA, 2013 – OPC (as private company) may be
formed for any lawful purpose by 1 persons.
• Section 149(1) of the CA, 2013 – OPC shall have minimum 1
director in its Board, its sole member can also be director of such
OPC.
• Some Feature explained! –
•
– Single-member: OPCs can have only 1 member or shareholder,
unlike other private companies.
– Nominee: A unique feature of OPCs that separates it from other
kinds of companies is that the sole member of the company has
to mention a nominee while registering the company. Since
there is only one member in an OPC, his death will result in the
nominee choosing or rejecting to become its sole member. This
does not happen in other companies as they follow the concept
of perpetual succession.
– Special privileges: OPCs enjoys several privileges and
exemptions under the Companies Act.
 D. Types of Company on the basis of
Domicile
• 1. Foreign company:
• Defined u/s 2(42) of the CA, 2013 – “foreign company”
means 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.
• Section 379 to Section 393 of the CA, 2013 prescribes
the provisions which are applicable on such companies.
• 2. Indian Company:
• A company formed and registered in India is
known as an Indian Company.
 E. Other Types of Company:

• 1. Section 8 Company:
• A section 8 company is registered as a limited company under section 8 of the CA,
2013 and holds the licence from Central Government (CG) and
• 1. has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such
other object;
• 2. intends to apply its profits, if any, or other income in promoting its objects; and
• 3. intends to prohibit the payment of any dividend to its members.
• Proviso to Section 4(1)(a) of the CA, 2013 – Section 8 Company is exempted from
clause (a) of Section 4(1) which means Section 8 Company is neither required to
add the word “Ltd” nor words “Private Ltd” at the end of its name.
• Section 8 of the CA, 2013 also laid down the provision related to Incorporation,
application for licence as section 8 company, grant of licence by CG and revocation
of licence by CG.
• Special privileges: Section 8 Company enjoys several privileges and exemptions
under the Companies Act.
• 2. Government Company:
• Defined u/s 2(45) of the CA, 2013 – “Government
company” means any company in which not less than 51 %
of the paid-up share capital is held by the Central
Government, or by any State Government or Governments,
or partly by the Central Government and partly by one or
more State Governments, and includes a company which is
a subsidiary company of such a Government company.
Explanation – “paid-up share capital” shall be construed as
“total voting power”, where shares with differential voting
rights have been issued.
• Special privileges: Government Company enjoys several
privileges and exemptions under the Companies Act.
• 3. Small Company:
• Defined u/s 2(85) of the CA, 2013 – “small company” means a company, other than
a public company,—
• 1. paid-up share capital of which does not exceed 50 lakh rupees or such higher
amount as may be prescribed which shall not be more than 10 crore rupees; and
• 2. turnover of which as per profit and loss account for the immediately preceding
financial year does not exceed 2 crore rupees or such higher amount as may be
prescribed which shall not be more than 100 crore rupees
• Provided that nothing in this clause shall apply to—
•
– a holding company or a subsidiary company;
– a company registered under section 8; or
– a company or body corporate governed by any special Act;
• Special privileges: Small Company enjoys several privileges and exemptions under
the Companies Act.
• 4. Subsidiary Company:
• Defined u/s 2(87) of the CA, 2013 – “subsidiary company”
or “subsidiary”, in relation to any other company (that is to
say the holding company), means a company in which the
holding company—
• 1. controls the composition of the Board of Directors; or
• 2. exercises or controls more than one-half of the total
voting power either at its own or together with one or
more of its subsidiary companies:
• Provided that such class or classes of holding companies as
may be prescribed shall not have layers of subsidiaries
beyond such numbers as may be prescribed.
• Explanation: For the purposes of this clause-
• 1. a company shall be deemed to be a subsidiary company
of the holding company even if the control referred to in
sub-clause (i) or sub-clause (ii) is of another subsidiary
company of the holding company;
• 2. the composition of a company’s Board of Directors shall
be deemed to be controlled by another company if that
other company by exercise of some power exercisable by it
at its discretion can appoint or remove all or a majority of
the directors;
• 3. the expression “company” includes any body corporate;
• 4. “layer” in relation to a holding company means its
subsidiary or subsidiaries.
• 5. Holding Company:
• Defined u/s 2(46) of the CA, 2013 –“holding
company”, in relation to one or more other
companies, means a company of which such
companies are subsidiary companies;
• Explanation: For the purposes of this clause,
the expression “company” includes any body
corporate
• 6. Associate Company:
• Defined u/s 2(6) of the CA, 2013 – “associate company”, in relation
to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint
venture company.
• Explanation: For the purpose of this clause:
• 1. the expression “significant influence” means control of at least
20% of total voting power, or control of or participation in business
decisions under an agreement;
• 2. the expression “joint venture” means a joint arrangement
whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement;
• 7. Producer Company:
• Common parlance- A producer company can be defined as a legally
recognized body of farmers/ agriculturists with the aim to improve the
standard of their living, and ensure a good status of their available
support, incomes and profitability.
• Definition- “Producer Company” means a body corporate having objects
or activities specified in section 581B and registered as Producer Company
under the Companies Act, 1956.
• Proviso to section 465(1) of the CA, 2013 prescribes – that the provision of
Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis
to a Producer Company in a manner as if the Companies Act, 1956 has not
been repealed until a special Act is enacted for Producer Companies.
• Note: Recently the Companies (Amendment) Bill, 2020 was introduced in
LokSabha i.e. on March 17, 2020. Thus with this bill aims to remove these
provisions and adds a new chapter in the Act with similar provisions on
producer companies.
• Some Conditions for Producer Company explained! :
•
– Only persons engaged in an activity connected with, or related to, primary produce can
participate in the ownership.
– The members have necessarily to be primary producers.
– Name of the company shall end with the words “Producer Company Limited“.
– On registration, the Producer Company shall become as if it is a private limited company for
the purpose of application of law and administration of the company, However it shall comply
with the specific provisions of part IXA until a special Act is enacted for Producer Companies.
– To incorporate Producer Company any of the following combination of producers is required:
– 10 or more producers (individuals); or
– 2 or more producer institutions; or
– Combination of the above 2.
– Every Producer Company shall have at least 5 director but not more than 15. (Provided that in
the case of an inter-State co-operative society incorporated as a Producer Company, such
Company may have more than 15 directors for a period of one year from the date of its
incorporation as a Producer Company.)
– PART IXA of Companies Act 1956 comprises of XII Chapters which prescribes different
provisions to be complied by Producer Company.
• 8. Dormant Company:
• In case of company is formed and registered under this 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 for obtaining the status of a
dormant company.
• Thereafter Registrar on consideration of the application shall allow the status of a dormant
company to the applicant and issue a certificate.
• “Inactive company” means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during the last two
financial years, or has not filed financial statements and annual returns during the last two
financial years.
• In case of a company which has not filed financial statements or annual returns for two
financial years consecutively, the Registrar shall issue a notice to that company and enter the
name of such company in the register maintained for dormant companies.
• Registrar have power to strike off the name of a dormant company from the register of
dormant companies, which has failed to comply with the requirements of this section.