Types of Companies under the Companies Act, 2013

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The company is an important element for any country as it plays a vital role in the development of the country, and it is a form of business that is governed by law. In India, company-related matters are governed by the Companies Act, 2013, and it contains various provisions regarding companies.

Companies registered under the Companies Act enjoy various benefits such as a separate legal identity, common seal, limited liability, ability to sue, perpetual succession, as well as the need to fulfill obligations related to them, such as publication of reports (if required), transparency, formalities, etc.

For better use of the concept of company, the Companies Act, 2013 has provided different types of companies, also called classification of companies, so that one can choose the right type of company as per their requirements. One Person Company, Private Company, Public Company, Associate Company, Company limited by shares, Unlimited Company, Company limited by guarantee, Holding Company, Government Company, and Nidhi Company, etc. are examples of types of companies given in the Companies Act, 2013

Types of Companies

Following are the types of companies:

1. Based on Incorporation

Based on incorporation, the company is mainly classified into three types, namely Chartered Companies, Statutory Companies, and Registered Companies:

(I) Chartered Companies

A chartered company is a type of company that is formed by order of the royal charter of the state, and all rules and regulations are formulated under the guidance of the royal charter or special provisions. The concept developed mainly in Europe in the early modern era and spread around the world, mainly to countries where they ruled. In India, the East India Company was the first chartered company established by the British Empire, but now no such company exists in India.

(II) Statutory Companies

Statutory company means a company that is formed by a law or by passing a special act, and its formation is quite different from normal company formation, as it requires first passing a special act in the Parliament (Center) or Legislature (State) to form it. Reserve Bank of India (RBI), Food Corporation of India (FCI), State Bank of India (SBI), Life Insurance Corporation (LIC), Punjab State Industrial Development Corporation (PSIDC), Punjab State Electricity Corporation Limited (PSPCL), etc., are examples of statutory companies.

(III) Registered Companies

Registered company means a company registered under the company law. For example, One Person Company, Private Limited Company, Public Limited Company, Section 8 Company, etc. In India, to form this type of company, it is mandatory to fulfill all the provisions given in the Company Act, 2013, like AOA, MOA, number of members, number of directors, registration procedure, etc. This is the most common type of company in the world, and it can be public, private, or mixed.

2. Based on Members

Based on the members, the company is mainly classified into three types: One Person Company, Private Limited Company, and Public Limited Company:

(I) One Person Company (OPC)

As the name suggests, it is a one person company or belongs to only one person. It is a type of company that requires only one person to form the company, and has all the important features of a company, such as a separate legal entity, a common seal, perpetual succession, limited liability, etc. It was first introduced in India under the Companies Act, 2013, to promote business. Note: The minimum and maximum number of members in this company is only one.

According to section 2(62) of the Companies Act, 2013 – ““One Person Company” means a company which has only one person as a member.”

(II) Private Limited Company (Pvt. Ltd.)

Private Limited Company is a type of company that is controlled by a private entity, and it requires a minimum of 2 persons to form it, and the maximum number of members limit is 200. It has many features like a separate legal entity, a common seal, limited liability, perpetual succession, capacity to sue, etc., and it is the most common type of company in India, and most of the startup businesses also start through this business form. It requires name suffix after the name, for example, if the name is ABC, then ABC Private Limited or ABC Pvt. Ltd.

According to section 2(68) of the Companies Act, 2013 – ““Private Company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles, —

• (i) restricts the right to transfer its shares;
• (ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

• (A) persons who are in the employment of the company; and
• (B) 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 not be included in the number of members; and

• (iii) prohibits any invitation to the public to subscribe for any securities of the company.”

(III) Public Limited Company (Ltd.)

Public Limited Company is a type of company that is controlled by the public, and it requires a minimum of 7 persons to form it, and there is no maximum limit on the number of members. It raises funds from the public through various means and has many features such as a separate legal entity, transfer of shares, common seal, limited liability, perpetual succession, capacity to sue, etc. It requires a name suffix after the name, for example, if the name is ABC, then ABC Limited or ABC Ltd.

According to section 2(71) of the Companies Act, 2013 – ““Public Company” means a company which—

• (a) is not a private company;
• (b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.”

3. Based on Liability

On the basis of liability, company is mainly classified into three types: Companies limited by shares, Companies limited by guarantee, and Unlimited Companies:

(I) Company Limited by Shares

A company limited by shares means that the shareholders of the company are protected by the limitations of liability of the shares, and it is classified as a type of company based on the liability of the members. In simple terms, a company limited by shares means that the shareholders of the company are liable for losses only to the extent of their shares, and no shareholder is personally liable to pay the debts. For example, if a shareholder invests Rs. 10, he will be liable only for Rs. 10, or in other words, the shareholder can suffer losses only up to the amount he has invested, not more than that.

According to section 2(22) of the Companies Act, 2013 – ““company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.”

(II) Company Limited by Guarantee

A company limited by guarantee means that the members of the company are protected by a guarantee of the limit, and it is classified as a type of company based on the liability of the members. In simple terms, a company limited by guarantee means that the members of the company are liable to pay only to the extent of their guarantee, and no member is personally liable to pay the debt. For example, if a member guarantees Rs 20, he will be liable only for Rs 20, or in other words, the member bears losses only up to the amount he has guaranteed, not more than that.

According to section 2(21) of the Companies Act, 2013 – ““company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.”

(III) Unlimited Company

Unlimited company is classified on the basis of liability of the members of the company and in this the liability of the members is unlimited which means the personal property of the members is used to pay the debts. In other forms of company, the members are given security by shares or guarantee, but in this form of company, no such provision is available; the liability of the members is unlimited. This form is adopted only by a private company and not by a public company.

According to section 2(92) of the Companies Act, 2013 – ““unlimited company” means a company not having any limit on the liability of its members.”

4. Based on Size

Based on the size the company is mainly classified into three types: micro companies, small companies and medium companies:

(I) Micro Companies

Micro companies refer to companies whose investment (asset or asset equivalent to generate revenue) is less than ₹1 crore and turnover (revenue) is less than ₹5 crore within a particular year. Those who fall under micro companies enjoy certain privileges like less compliance, subsidies, tax benefits, etc., from the government or governing law.

(II) Small Companies

Small companies refer to companies whose investment (assets) is more than ₹1 crore but less than ₹10 crore, and annual turnover (revenue) is more than ₹5 crore but less than ₹50 crore. Those who fall under small companies get certain privileges from the government or governing laws, like less compliance, subsidies, tax benefits, etc.

(III) Medium Companies

Medium companies refer to companies whose investment (assets) is more than ₹10 crore but less than ₹50 crore, and annual turnover (revenue) is more than ₹50 crore but less than ₹250 crore. Those who fall under medium companies get certain privileges from the government or governing laws, like less compliance, subsidies, tax benefits, etc.

(IV) Large Companies

Large companies refer to those companies whose investment (assets) is more than ₹50 crores, and annual turnover (revenue) is more than ₹250 crores. Or in other words, when a medium-sized company crosses the threshold limit, it is included in large companies. Note that various factors can also be used to measure the size of companies, such as employees, area, sector, etc.

5. Based on Control

Based on control, the company is mainly classified into two types: Holding Companies and Subsidiaries:

(I) Holding Company

Holding company means a parent company that holds shares of other companies, known as subsidiaries. The holding company holds the majority of shares (usually more than 51%) of the subsidiary company. For example, Alphabet Inc. is a holding company that holds the majority of shares of Google, Waymo, Verily, Google Fiber, etc., and these are subsidiaries of Alphabet Inc.

According to section 2(46) of the Companies Act, 2013 – ““holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies.”

(II) Subsidiary Company

Subsidiary company means a company that is controlled by another company known as a holding or parent company. A subsidiary company acts according to its parent company. The majority of shares (usually more than 51%) in a subsidiary company are held by its parent company or holding company, and the subsidiary is responsible for reporting to its parent company. For example, Google, Waymo, Verily, Google Fiber, etc., are subsidiaries of Alphabet Inc.

According to section 2(87) of the Companies Act, 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—

• (i) controls the composition of the Board of Directors; or
• (ii) 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,—

• (a) 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;
• (b) 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;
• (c) the expression “company” includes any body corporate;
• (d) “layer” in relation to a holding company means its subsidiary or subsidiaries.”

(III) Associate Company

Associate company means a company in which another company has significant influence and that company holds more than 20% but less than 51% of the shares of this company. In simple words, an associate company means any company other than a subsidiary or holding company.

According to section 2(6) of the Companies Act, 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,—

• (a) the expression “significant influence” means control of at least twenty per cent (20%). of total voting power, or control of or participation in business decisions under an agreement;
• (b) 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.”

6. Based on Listing

Based on the listing the company is mainly classified into two types: Listed Companies and Unlisted Companies:

(I) Listed Companies

Listed companies mean companies listed on the stock exchange, which means the shares of the company are sold in the open market, and anyone can buy the shares of the company. A listed company is a public company, and it uses a name suffix after its name, like “Limited” or “Ltd.”. All matters related to the exchange/trading of shares are managed by the exchange board of the country. For example, in India, the Securities and Exchange Board of India regulates matters related to share/stock trading.

According to section 2(52) of the Companies Act, 2013- ““listed company” means a company which has any of its securities listed on any recognised stock exchange:

Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.

(II) Unlisted Companies

Unlisted companies mean those companies that are not listed on the stock exchange, i.e., the shares of the company are not sold publicly in the open market, and no one can buy the shares of the company easily. Very few investors are found in it, and they invest in a large number of shares in it. Note: An unlisted company can be a private or public company. Hero Fincorp, HDFC Securities, Chennai Super Kings, etc., are examples of unlisted companies.

7. Other Companies

Following are also types of companies:

(I) Government Company

A government company is a type of company in which the government has a majority share of the company, which is probably more than 51% and it manages the affairs of the company. The government can include state, center or both, and if the total share of both is more than 51% then that company is also called a government company. The main objective of this type of company is social welfare and maintaining competition in the market. In India, Oil and Natural Gas Corporation (ONGC), Bharat Electronics Limited (BEL), Coal India Limited, Indian Railways, Bharat Heavy Electricals Limited (BHEL), etc. are examples of government companies.

According to section 2(45) of the Companies Act, 2013 – ““Government company” means any company in which not less than fifty-one per cent (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.”

(II) Foreign Company

Foreign company means a company incorporated in another country. For example, Google, Microsoft, Unilever, Samsung, Nestle, Toyota, etc. are incorporated in another country, but they also have presence and operations in India; in this case, all these companies are foreign companies for India. In simple words, where the company is incorporated, it is called a domestic company, and if they also set up operations in another country, then they become a foreign company for that country. In India, the number of foreign companies increased after the New Economic Policy 1991, as that policy promoted liberalization, globalization, and privatization.

According to section 2(42) of the Companies Act, 2013 – ““foreign company” means any company or body corporate incorporated outside India which—

• (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
• (b) conducts any business activity in India in any other manner.”

(III) Dormant Company

A dormant company is an inactive and silent company that is not currently doing business or generating income, and this is also a type of company. It is quite different from other types of companies because its registration process is similar, but the concept is different from other types of companies. The main purpose of forming this type of company is for a future project, and it remains silent and inactive (except for essential activities) until the project starts. Once the project or normal activities start, it is no longer called a dormant company, and it becomes a normal company.

According to section 455(1) of the Companies Act, 2013- “Where a 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 in such manner as may be prescribed for obtaining the status of a dormant company.

Explanation.—For the purposes of this section,—

• (i) “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;
• (ii) “significant accounting transaction” means any transaction other than—
  • (a) payment of fees by a company to the Registrar;
  • (b) payments made by it to fulfil the requirements of this Act or any other law;
  • (c) allotment of shares to fulfil the requirements of this Act; and
  • (d) payments for maintenance of its office and records.“

(IV) Nidhi Company

Nidhi company is a type of non-banking financial company (NBFC) in India that works for community welfare and does not require a license from the Reserve Bank of India. Its concept is different from other NBFCs because only members deposit money in it, and they withdraw or borrow it when needed. In simple words, only members enjoy its benefits. It is governed by the Ministry of Corporate Affairs, and it is mandatory to have a name suffix after its name, like “Nidhi Limited” or “Nidhi Ltd.”. Maben Nidhi Limited, Samartha Nidhi Limited, Mahamudra Global Nidhi Limited, Siddhivinayak Nidhi Limited, Mini Muthoottu Nidhi Kerala Limited, etc., are examples of Nidhi companies.

(V) Section 8 Company

Section 8 company is a type of company that is generally known as a non-profit organization company whose objective is to promote social welfare, arts, commerce, education, charity, environmental protection, sports, science, research, etc. This company does not distribute its profit among its members but reinvests it for further welfare, and this company enjoys tax benefits under the tax law. This company is not required to use any kind of name suffix like “Private Limited”, “Limited”. Tata Trust, Infosys Foundation, Premji Foundation, Reliance Foundation, Aga Khan Foundation, etc., are examples of Section 8 companies.

Note: The above data is subject to change.

Read Also:

• What is the Company? Meaning, Features and More.
• Advantages and Disadvantages of the Company
• What is a One Person Company? Meaning, features, and more.
• What is a Private Limited Company? Meaning, features, and more.
• What is a Public Limited Company? Meaning, features and more.

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Source:

• https://www.indiacode.nic.in/bitstream/123456789/2114/5/A2013-18.pdf