KINDS OF COMPANY

INTRODUCTION

The Indian economy has a variety of companies existing in its market such as public companies,
private companies, investment companies, limited liability companies etc. These numerous entities in the
market may look different from each other on the surface, but based upon certain identifiable common
characteristics they can be grouped into below-mentioned classifications. This article aims to draw your
attention towards the conventional classification of the companies that are made based upon factors such
as liability, control, incorporation, transferability of shares etc.

DEFINITION

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.”

TYPES OF COMPANY

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).

e.g. 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 come into existence when they are registered under the Companies Act and a
certificate of incorporation is granted to it by the Registrar.

3. Royal Charter Company

 It may be better understood as the company born out of the authorization of the sovereign or the
crown. This was the mode of incorporation which was followed earlier to the Registration under the
Companies Act. A charter is granted by the crown to the people requesting to form a cooperative or a
company. To name a few, The Bank of England (1694), The East India Company (1600) were formed
by the means of charters passed by the then Crown of England. The authorization given by the sovereign
gives legal existence to these companies by means of the body of the charter. This mode of incorporation
is no more recognized in any Companies Act to incorporate new Companies.

B. Types of Company on the basis of Liability

1. Companies limited by shares:

These types of companies are mentioned in Section 2(22) of the Companies Act, 2013. The
liability of the members of such a company is based upon the number of shares kept unpaid. This liability
against the shares kept may be brought to the authority. Once the payment towards the security is made
by the shareholder or member then no liability beyond that is placed upon such member. The liability
may be enforced during the company’s existence and even during its winding-up process.

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:

These types of companies are mentioned in Section 2(21) of the Companies Act, 2013. In a
Company where the liability is limited by guarantee, it means the member of the Company has agreed on
the Memorandum of Association to repay the same amount during winding up of such Company. In such
companies, the liability of the members is limited to the undertaking given by them. Trust research
associations, etc. are examples of companies liability 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:

These companies as defined under Section 2(92) of the Companies Act, 2013 do not have a cap
on the amount of liability that may add on their members in case the company has to repay any debt. For
any amount that the company owes these members, the unlimited liability company shall be liable to the
extent of their interest in the company. These companies do not draw any popularity when it comes to
Indian Market.

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.

Difference between limited and unlimited companies

Limited liability company Unlimited liability company
Liability of the members is only in proportion to the Liability of the members is not in proportion to the
sum they have invested in the company. investment in their company.
Personal properties or assets will not be forfeited if Even the personal property of the member will be
the company goes bankrupt or winds up. forfeited against the liability of the company.

C. Types of Company on the basis of number of members

1. Public Company:

As defined under Section 2(71) of the Companies Act, 2013, Public Companies are the ones which
are not a private company. As mandated under Section 3(1)(a) of the Companies Act, 2013, there should
be at least 7 members to form a public company. It is the intrinsic nature of the public company that there
is the right to transfer shares and debentures of the public company to the public at large.

 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.

2. Private company:

The private companies as defined under Section 3(1)(b) of the Companies Act, 2013 are very
restrictive in nature wherein it may in its Articles of Association restrict the right to transfer shares. The
number of members in such a company might be a maximum of 50. The shares and debentures of such
companies are not available for the public at large. The number of members in a company to be called a
private company is two, wherein it is clearly set that two members jointly holding a single share shall be
considered as one member and not two members. The easy identification of Private companies is the ‘Pvt.
Ltd.’ attached to its name.

 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:

1. 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.
2. 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,—

1. has a place of business in India whether by itself or through an agent, physically or

through electronic mode; and
2. 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. Indian Company has
been defined under Section 2(20) of the Companies Act, 2013 as any company registered under the
Companies Act, 2013, or any other previous law is known as an Indian Company. An Indian company
may prove its locus standi with the help of its office address and the legislation provides a guideline to be
followed while using such powers by 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—

o a holding company or a subsidiary company;

o a company registered under section 8; or
o 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! :

o Only persons engaged in an activity connected with, or related to, primary produce can
participate in the ownership.
o The members have necessarily to be primary producers.
o Name of the company shall end with the words “Producer Company Limited“.
o 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.
o To incorporate Producer Company any of the following combination of producers is
required:
o 10 or more producers (individuals); or
o 2 or more producer institutions; or
o Combination of the above 2.
 o 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.)
o 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 has 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.