The company is the most effective vehicle yet discovered to manage and control modern business enterprise. Other forms of organisation may outnumber it, but most business is transacted by companies.
In fact, the company pervades the economic and social life all over the world, because of so many advantages it enjoys over other forms of organisation.
Some of the types of companies are as follows:-
1. Public Limited Company 2. Private Company 3. Companies Deemed to be Public Limited Company 4. Limited and Unlimited Companies 5. Section 25 Companies
6. Holding and Subsidiary Companies 7. Government Companies 8. Foreign Companies 9. One-Person Company 10. Chartered Company 11. Statutory Company
12. Registered or Incorporated Company 13. Company Limited by Shares 14. Company Limited by Guarantee 15. National or Domestic Company 16. Indian Company 17. Multinational or Transnational Company.
Types of Companies: Public Limited Company, Private Company, Government Company, National Company and More…
Types of Companies – 8 Main Types: Public Limited Company, Private Company, Companies Deemed to be Public Limited Company and a Few More…
Type # 1. Public Limited Company:
Public Company means which is formed with minimum of seven members and three Directors. There is no restriction on maximum number of members. The name of the company shall end with the word ‘Limited’ which is not a private company.
Public Limited Company means a Company which is not a private limited Company and has a minimum Authorized Capital of Rs. 5 Lakhs. It does not carry the word ‘private’ in its name and also do not have the restrictions as carried out in the private limited companies. A Private Company which is subsidiary of Public Company also functions as Public Companies.
Basic Features are as follows:
i. Minimum Authorized Capital of Rs. 5 Lakhs.
ii. No restriction on number of members.
iii. Shares are easily transferable.
iv. Can access Public in case of need of funds.
i. Better Governed due to large number of compliances.
ii. No limit to Memberships.
iii. More financing options in form of Public Issue or Deposits.
iv. Better Creditworthiness.
i. Number of legal Compliances are too large.
ii. Approvals of Government for large number of purposes.
iii. Restrictions on payment of salaries and loans to Directors.
iv. Not suitable for closely held business.
Type # 2. Private Company:
Private Company means a company which by its articles of association:
(i) Restricts the right of members to transfer its shares.
(ii) Limits the number of its members to fifty. In determining this number of 50, employee- members and ex-employee members are not to be considered.
(iii) Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company.
(iv) Prohibits any invitation or acceptance of deposits from persons other than its member, directors or their relatives; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definitions, be treated as a single member.
If a private company contravenes any of the aforesaid three provisions, it ceases to be private company and loses all the exemptions and privileges which a private company is entitled.
Following are some of the privileges and exemptions of a private limited company:
(i) Minimum number of members are two (seven in case of public companies)
(ii) Prohibition of allotment of the shares or debentures in certain cases unless statement in lieu of prospectus has been delivered to the Registrar of Companies does not apply.
(iii) Restriction contained in Section 81 related to the rights issues of share capital does not apply. A special resolution to issue shares to non-members is not required in case of a private company.
(iv) Restriction contained in Section 149 on commencement of business by a company does not apply. A private company does not need a separate certificate of commencement of business.
(v) Provision of Section 165 relating to statutory meeting and submission of statutory report does not apply.
(vi) One (if seven or less members are present) or two members (if more than 7 members are present) present in person at a meeting of the company can demand a poll.
(vii) In case of a private company which is not a subsidiary of a public limited company or in the case of a private company of which the entire paid up share capital is held by the one or more body corporates incorporated outside India, no person other than the member of the company concerned shall be entitled to inspect or obtain the copies of profit and loss account of that company.
(viii) Minimum number of directors is only two. (three in case of a public company)
The Company Law Board on being satisfied that the infringement of the aforesaid three conditions was accidental or due to inadvertence or that on other grounds, it just an equitable to grant relief, may grant relief to the company from the consequences of such infringement.
The infringement of the last three conditions does not automatically convert a private company into a public company. It continues to remain a private company; it merely ceases to be entitled to the privileges and exemptions available to a private company.
i. Suitable for closely held groups.
ii. Less Legal Formalities.
iii. Less Government Intervention.
iv. Better Creditworthiness.
i. Limited financing avenues i.e., no public offer or acceptance of deposits.
ii. Limited Membership.
A private company will be treated as a deemed public limited company in any of the following circumstances:
(i) Where at least 25 per cent of the paid up share capital of a private company is held by one or more bodies corporate, the private company shall automatically become the public company on and from the date on which the aforesaid percentage is so held.
(ii) Where the annual average turnover of the private company during the period of three consecutive financial years is not less than Rs. 25 crores, the private company shall be, irrespective of its paid up share capital, become a deemed public company.
(iii) Where not less than 25 per cent of the paid up capital of a public company limited is held by the private company, then the private company shall become a public company on and from the date on which the aforesaid percentage is so held.
(iv) Where a private company accepts deposits after the invitation is made by advertisement or renews deposits from the public (other than from its members or directors or their relatives), such companies shall become public company on and from date such acceptance or renewal is first made.
Companies may be limited or unlimited companies. Company may be limited by shares or limited by guarantee.
(i) Company Limited by Shares:
In this case, the liability of members is limited to the amount of uncalled share capital. No member of company limited by the shares can be called upon to pay more than the face value of shares or so-much of it as is remaining unpaid. Members have no liability in case of fully paid up shares.
(ii) Company Limited by the Guarantee:
A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively thereby undertake to pay if necessary on liquidation of the company. The liability of the members to pay the guaranteed amount arises only when the company has gone into liquidation and not when it is a going concern. A guarantee company may be a company with share capital or without share capital.
Unlimited Company – The liability of members of an unlimited company is unlimited. Therefore their liability is similar to that of the liability of the partners of a partnership firm.
Type # 5. Section 25 Companies:
Under the Companies Act, 1956, the name of a public limited company must end with the word ‘Limited’ and the name of a private limited company must end with the word ‘Private Limited’.
However, under Section 25, the Central Government may allow companies to remove the word “Limited/Private Limited” from the name if the following conditions are satisfied:
(i) The company is formed for promoting commerce, science, art, religion, charity or other socially useful objects
(ii) The company does not intend to pay dividend to its members but apply its profits and other income in promotion of its objects.
Type # 6. Holding and Subsidiary Companies:
A company shall be deemed to be subsidiary of another company if:
i. That other company controls the composition of its board of directors; or
ii. That other company holds more than half in face value of its equity share capital.
iii. Where the first mentioned company is subsidiary company of any company which that other’s subsidiary, e.g., Company B is subsidiary of the Company A and Company C is subsidiary of Company B, therefore Company C is subsidiary of Company A.
The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove all or majority of directors of the subsidiary company without consent or concurrence of any other person.
Type # 7. Government Companies:
Means any company in which not less than 51 per cent of the paid up share capital is held by the Central Government or any State Government or partly by the Central Government and partly by the one or more State Governments and includes a company which is a subsidiary of a government company. Government Companies are also governed by the provisions of the Companies Act. However, the Central Government may direct that certain provisions of the Companies Act shall not apply or shall apply only with such exceptions, modifications and adaptations as may be specified to such government companies.
Type # 8. Foreign Companies:
Means a company incorporated in a country outside India under the law of that other country and has established the place of business in India.
Types of Companies – One-Person, Private and Public Company
On the basis of the pattern of shareholding and other requirements under the Companies Act, 2013, there are three categories of companies, one-person company, private company and public company. In these three categories, there may be Indian or foreign companies and Government or private sector companies.
Let us discuss one-person, private and public companies:
Type # 1. One-Person Company:
One-Person Company (OPC) is a company that is formed and operated by a single person with limited liability. Section 2(62) of the Companies Act, 2013 has defined one-person company as follows- “One- person company means a company with only one person as its member.”
Rule 3(1) of the Companies (Incorporation) Rules, 2014 provides that:
i. Only a natural person being Indian citizen and resident in India can form one-person company or can be nominee for the sole member of one-person company.
ii. One person can form only one, one-person company or can become nominee of one such company.
iii. It cannot be formed for charitable purpose.
iv. It cannot carry out, non-banking financial investment activities including investments in securities of anybody corporate.
v. Its paid-up capital should not be more than Rs.50 lakh.
vi. The average annual turnover should not exceed Rs.2 crore.
The words ‘one-person company’ shall be mentioned in brackets below the name of the company.
Type # 2. Private Company:
A private company (called private limited company) has the following features:
i. Number of shareholders is at least 2 and up to 200.
ii. There is a restriction on transfer of shares.
iii. It cannot invite the general public through any means to subscribe its shares.
iv. It is necessary for a private company to affix the words ‘private limited’ after its name to distinguish it from a public company.
Provision for minimum paid-up capital required for a private or public company has been deleted by The Companies (Amendment) Act, 2015.
If a private company contravenes any of the above provisions, it can be treated as a public company and loses the privileges of a private company.
Privileges of a Private Company:
As compared to a public company, a private company has the following privileges:
(a) A private company may be formed with minimum 2 members as against minimum 7 members required for forming a public company.
(b) There is no need for issuing prospectus for subscribing shares, as the general public is not invited to subscribe to its shares.
(c) Allotment of shares may be done without receiving the minimum subscription of shares.
(d) A private company may start business as soon as the certificate of incorporation is received.
(e) The minimum number of directors in a private company is just 2.
(f) A private company is not required to maintain an index of its shareholders.
(g) There is no restriction on the amount of loans that may be given to the Directors.
Type # 3. Public Company:
A public company (also called public limited company) is one which is not a private company.
A public company has the following features:
1. It has a requirement of minimum 7 members with no restriction on the maximum number of shareholders.
2. It has no restriction on transfer of shares.
3. It is not prohibited to invite the general public for subscribing to its shares.
A private company which is a subsidiary of a public company is also treated as a public company and does not have the privileges which are available to a private company.
Types of Companies – Private Company and Public Company
There are two types of companies, i.e.:
1. Private company and
2. Public company.
According to the Companies Act, 2013 a private company is the one which restricts the right of its members to transfer shares. It has minimum of two and a maximum of 200 members excluding present and ex-employees who are the members of the company. It prohibits any offer to the general public to subscribe to its shares. It must have a minimum paid-up capital of Rs.one lakh.
It is necessary for a private company to use the word ‘Private Limited’ after its name. If it contravenes any of the above provisions, it will cease to be a private company and will lose all the exemptions and privileges. It is a very useful organisation for those who want to go in for large scale business with limited liability.
The 2013 Act introduces a new type of entity to the existing list i.e. apart from forming a public or private limited company, the 2013 Act enables the formation of a new entity a ‘one-person company’ (OPC). An OPC means a company with only one person as its member (Section 3(1) of 2013 Act).
Rule 3(1) provides that only a natural person who is an Indian citizen and a resident in India shall be eligible to incorporate OPC.
1. No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company.
2. OPC to compulsory convert itself into public or private company in certain cases. Where the paid up share capital of an OPC exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a one person company.
A public company is one which is not a private company.
According to the Company Act 2013, a public company is one which:
(i) Has a minimum paid-up capital of Rs. five lakhs.
(ii) Has a minimum of 7 members with no limit on maximum members.
(iii) Has no restriction on transfer of shares.
(iv) Is not prohibited from offering shares for subscription to general public.
(vi) A private company which is a subsidiary of a public company is also treated as a public company.
Types of Companies – Classified on the Basis of Mode of Incorporation, Membership, Liability of Members, Inter-Company Relationship and Nationality
Companies may be classified as follows:
On the basis of the mode of incorporation, companies are of the following kinds:
i. Chartered Company:
Companies which are established by the Royal Charter or under a special order granted by a king or queen are known as Chartered Companies. Such a company enjoys exclusive powers and privileges. Such companies can be set up in the countries having a system of monarchy. The East India Company, the Bank of England, the Chartered Bank of Australia, India and China, the Hudson Bay Company has been examples of chartered companies.
ii. Statutory Company:
Such a company is established under a special Act passed by Parliament or by a State legislature as the case may be. The objects and powers of such company are defined by the Act constituting it. Therefore, such a company is not required to have a Memorandum of Association. It need not use the word ‘Limited’ against its name.
The audit of a statutory company/corporation is conducted under the supervision and control of the Comptroller and Auditor General of India. Statutory companies generally enjoy autonomous status as they are created to carry out business requiring extraordinary powers and privileges.
The Reserve Bank of India, the Industrial Development Bank of India, the Life Insurance Corporation of India, the Unit Trust of India are some examples of statutory companies in our country.
iii. Registered or Incorporated Company:
A company registered under the Companies Act is called Registered or Incorporated Company. Such companies are most common in practice. It is significant to note that insurance, banking and electricity supply companies are also incorporated under the Companies Act.
But their operations are governed by the provisions of their special Acts, namely the Insurance Act, 1938, the Banking Regulation Act, 1949 and the Electricity Supply Act, 1948. The provisions of the Companies Act are applicable to these companies only to the extent that they are not inconsistent with these contained in the special status governing them.
From the point of view public interest or membership, companies may be classified as follows:
i. Private Company:
It means a company which has a minimum paid up capital of one lakh rupees or such higher capital as may be prescribed and which by its Articles of Association –
a. Restricts the right of its members to transfer shares, if any;
b. Limits the number of its members to 50, excluding members who are or were in the employment of the company.
c. Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company, and
d. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relations.
ii. Public Company:
A public company means a company which –
a. Is not a private company
b. Has a minimum paid up capital of five lakh rupees or such higher paid up capital, as may be prescribed; and
c. Is a private company which is a subsidiary of a company which is not a private company.
iii. Government Company:
It is a company in which 51% or more of the paid-up share capital is held by the Central Government and/or State Government. It may be partly or wholly owned by the Government.
A company which is subsidiary of a government company is also considered a government company. Hindustan Steel Limited, Hindustan Machine Tools Limited, the State Trading Corporation of India is an example of a government company.
From the point of view the liability of members, companies are of three types:
i. Unlimited Company:
It is a company in which the liability of every member is unlimited and extends to his personal property. Such a company may or may not have share capital. But the creditors of such a company cannot sue the members directly. The liability of a member is enforceable only at the time of winding up of the company.
Section 12C of the Companies Act, 1956 provides for the incorporation of a company having no limit on the liability of its members. Unlimited companies are rarely found in practice.
ii. Company Limited by Shares:
In this type of company the liability of members is limited to the value of the shares held by them. In case a member has paid the full value of the shares, he owes no further liability to the company. In case of partly paid shares the liability of members is limited to the unpaid amount on the shares held by them. In India, most of the companies belong to this category.
iii. Company Limited by Guarantee:
In such a company the liability of members is limited to such amount as they agreed to contribute to the assets of the company in the event of its being wound up. This amount is known as the ‘guarantee’. The amount guarantee by the members can be called up only at the time of winding up. It is, therefore, in the nature of ‘Reserve Capital’. Such a company may or may not have share capital.
In case the company has share capital, liability of its members consists of besides the guarantee, the unpaid amount, if any, on the shares held by them. A guarantee company is formed generally to promote education, art, science, culture, sports etc.
Trade associations, chambers of commerce, stock exchange, sports clubs, etc., are often organised as companies limited by guarantee. The Articles of Association of such a company must state the number of members with which the company is to be registered.
On the basis of inter-company relationship, companies are of two types:
i. Holding Company:
A company is known as holding company when it controls the management of and/or majority ownership in another company. A holding company may have any number of subsidiaries.
ii. Subsidiary Company:
It is a company in which another company (called holding company) – (a) holds more than half of the nominal value of its equity share capital or more than half of its total voting power; (b) controls the majority composition of its Board of Directors with the sole purpose of controlling its management; or (c) is the subsidiary of another subsidiary company.
From the point of view of nationality, companies may be divided into two categories:
i. National or Domestic Company:
The operations of such a company are confined within the boundaries of the country in which it is registered or incorporated.
ii. Multinational or Transnational Company:
Such a company carries on business not only in the country of its incorporation but also in one or more other countries. In other words, the area of its operations extends beyond the country in which it is registered. Under the Companies Act, 1956, a company incorporated outside India but having a place of business in India is known as a foreign company. It is subject to special restrictions under the Act.
It must conspicuously exhibit on the outside of every office or place where it carries on business in India the name of the company and the country in which it is incorporated in English and in one of local languages.
In case 51% or more of the paid-up share capital of a foreign company is held by one or more citizens of India or/and one or more bodies corporate incorporated in India, such company shall comply with the prescribed formalities with regard to the business carried on in India, as if it were a company incorporated in India.
Types of Companies: On the Basis of Incorporation, Liability, Ownership, Nationality, Holding Company and Subsidiary Company
Different types of companies may be formed for different purposes. For instance, statutory and government companies are formed by the Government. Entrepreneurs may form private companies, if they want to operate on a small scale and have close control over their business. Public companies are suitable for ventures requiring huge capital. On the basis of liability of members, companies may be ‘limited by shares’ or ‘limited by guarantee’. Companies limited by guarantee are generally formed for social and charitable purposes.
In addition to the companies incorporated in India, there are foreign multi-national companies operating in India and having their registered offices in many foreign countries. On the basis of company to company relationship, we can classify companies into holding companies and subsidiary companies.
On the Basis of Incorporation:
(i) Statutory Company – A statutory company is incorporated through a special Act of the State Legislature or Parliament. It is governed by the provisions of the Act which created it and the provisions of the Companies Act do not apply to it. Such companies need not have a Memorandum of Association and also need not use the word ‘Limited’ in their names. The examples of such companies are Indian Oil Corporation, Life Insurance Corporation of India and State Trading Corporation.
(ii) Registered or Incorporated Company – Registered companies are those which are formed and registered under the Companies Act of the country. In India registered companies are incorporated under the Companies Act, 1956 or under any of Companies Act in force prior to the present Act.
On the Basis of Liability:
(i) Company Limited by Shares:
In case of a company limited by shares, the liability of each member is limited to the extent of nominal value of the shares held by him. Such companies provide a special attraction to the investor since liability of a member, in the event of its winding up, is limited to the extent of the amount that remains unpaid on the shares held by him. For instance, A is allotted 100 shares of Rs. 10 each in a company. He is liable to the extent of Rs. 1,000 only. As soon as he has paid Rs. 1,000, his liability comes to an end. The concept of limited liability has allowed greater capital formation in India. The largest number of companies belong to this class of companies.
(ii) Company Limited by Guarantee:
The liability of a member of a guarantee company is limited to the amount which he has undertaken to contribute in the event of its winding up. This amount is known as the guarantee and it is specified in the memorandum of association. Each member who guarantees to pay the fixed amount is not required to pay until the company is wound up. Companies limited by guarantee are formed for non-trading purposes, i.e., to promote art, sports, social and cultural activities.
(iii) Unlimited Company:
Unlimited company is not popular in India because liability of its members is unlimited. Both the share contribution and the private property of a member is at stake to pay off the creditors, when the company is wound up.
On the Basis of Ownership or Public Interest:
(i) Private Company – It can be started with a minimum of 2 members. Its shares are held by a private group of individuals and not by the public at large.
(ii) Public Company – It can be started with a minimum of 7 members. Its shares are held by the members of the general public.
(iii) One Person Company – It is a company which has only one person as a member.
(iv) Government Company – Its majority shares are held by the government or government agencies.
On the Basis of Nationality:
(i) Indian Company:
An Indian company is one which is registered or incorporated under the Indian Companies Act. It has its registered office in India.
A foreign company is a company which is incorporated outside India but carries on business in India through agents or branches. The provisions of the Indian Companies Act are applicable to foreign companies carrying on business in India.
(ii) Multi-National or Trans-National Company:
Such companies extend the areas of their operations beyond the country in which they are registered. For instance, Coca Cola is a company registered in the U.S.A. and it has production and marketing facilities in many countries of the world. Some other popular multi-national corporations include Pepsico (USA), Ponds (USA) Brook Bond (U.K.), Sony (Japan), Suzuki (Japan), Nestle (Switzerland) and Microsoft (USA).
On the Basis of Company to Company Relationship:
(Holding and Subsidiary Companies):
(i) Holding Company:
It is a company which controls another company or has a hold over another company termed as subsidiary company.
If a company can control the policies of another company through the ownership of its shares or through control over the composition of its Board of Directors, the company is called a holding company. A company, the policies of which are controlled, is called a subsidiary company. The holding company has a say in the formulation of policies of the subsidiary.
(ii) Subsidiary Company:
A company is called a subsidiary company of another company i.e., holding company if it is controlled by the latter. In a subsidiary company, the holding company –
(a) Controls the composition of the Board of Directors, or
(b) Controls more than half of the total share capital either on its own or together with one or more of its subsidiary companies.
It should be noted that both holding and subsidiary companies are separate legal entities. If a company which is a subsidiary of a subsidiary company, shall also be a subsidiary of the holding company. For instance, if company B is a subsidiary of company A and company C is a subsidiary of company B, company C will become a subsidiary of company A also.