Companies Act 2013: Types of Company

The Companies Act, 2013 is the primary legislation governing the formation, regulation, and dissolution of companies in India. It classifies companies into various types based on their characteristics, ownership, liability, and purpose. Understanding these classifications is crucial for entrepreneurs, investors, and business professionals to determine the most suitable form of company structure for their operations.

On the Basis of Incorporation:

• Statutory Companies:

These companies are established by a special Act of Parliament or state legislature. Examples include the Reserve Bank of India (RBI) and Life Insurance Corporation of India (LIC). Statutory companies are governed by their respective Acts, rather than the Companies Act.

• Registered Companies:

Companies that are incorporated under the Companies Act, 2013, or under any previous company laws. Most companies in India fall under this category, and their operations are governed by the Companies Act.

On the Basis of Liability:

• Company Limited by Shares:

The liability of shareholders is limited to the unpaid amount on the shares they hold. If the company incurs losses or debts, shareholders are only liable for the unpaid portion of their shares.

• Company Limited by Guarantee:

In this type of company, the liability of members is limited to the amount they agree to contribute to the company’s assets in case of winding up. These companies are often formed for non-profit purposes, such as clubs or charitable organizations.

• Unlimited Company:

Here, there is no limit on the liability of members. They are personally responsible for the company’s debts if it is liquidated. This type of company is rare due to the high financial risk involved.

On the Basis of the Number of Members:

• Private Company:

Under Section 2(68) of the Companies Act, a private company is defined as one that restricts the right to transfer its shares and limits the number of its members to 200. A private company cannot invite the public to subscribe to its shares. It is commonly used by small and medium-sized businesses.

• Public Company:

A public company is defined under Section 2(71) of the Act. It does not have such restrictions on share transfers and can invite the public to buy its shares. The minimum number of members required to form a public company is seven, and there is no upper limit on the number of members.

• One Person Company (OPC):

Introduced by the Companies Act, 2013, an OPC is a company that has only one member. It is essentially a type of private company designed to facilitate sole proprietorship businesses under a corporate structure. The liability of the member is limited, and it helps small entrepreneurs operate with limited liability protection.

On the Basis of Control:

• Holding Company:

A holding company holds the majority of shares (more than 50%) in another company, known as a subsidiary, and has the ability to control its management and policies.

• Subsidiary Company:

A subsidiary company is controlled by a holding company, either through ownership of more than 50% of its shares or control of its board of directors.

• Associate Company:

Defined under Section 2(6) of the Companies Act, an associate company is one in which another company holds a significant influence, usually defined as owning at least 20% but not more than 50% of its share capital.

On the Basis of Ownership:

• Government Company:

Under Section 2(45), a government company is one in which the central government, state government, or both jointly hold at least 51% of the paid-up share capital. Examples include ONGC and Bharat Heavy Electricals Limited (BHEL).

• Foreign Company:

A foreign company is defined under Section 2(42) as a company incorporated outside India but conducting business in India through an office, branch, or agent.

• Section 8 Company:

A Section 8 company is a non-profit organization established for promoting charitable objectives such as commerce, art, education, research, social welfare, and environmental protection. These companies do not distribute profits to their members and are often referred to as Non-Governmental Organizations (NGOs).

On the Basis of Listing:

• Listed Company:

A listed company is one whose shares are listed and traded on a recognized stock exchange. These companies are subject to stringent disclosure and regulatory requirements to protect the interests of shareholders and the public.

• Unlisted Company:

An unlisted company is one whose shares are not listed on any stock exchange. These are typically private companies or closely held public companies.

Other Types of Companies:

• Dormant Company:

A dormant company is one that has been formed and registered under the Companies Act for a future project or to hold an asset or intellectual property but does not engage in any significant accounting transactions. It can remain dormant while retaining its legal status.

• Small Company:

Defined under Section 2(85), a small company is one whose paid-up share capital does not exceed INR 2 crore and whose turnover does not exceed INR 20 crore. This type of company enjoys various exemptions and relaxations in compliance requirements.