The classification of companies is a crucial aspect for
understanding the diverse landscape of business entities. Companies vary in
their structure, formation, and objectives. Categorizing them based on specific
criteria provides a comprehensive framework for analysis. In this blog post, we
explore the classification of different types of companies, examining their
incorporation methods, liabilities, size, control or holding structures, access
to capital, and various other characteristics. This exploration sheds light on
the diverse nature of businesses and the regulatory frameworks that govern
them.
Join our Telegram or WhatsApp group and
never miss a single update.
1. On
the basis of its incorporation
A. Charter
Company
Companies incorporated by a special charter are known as
charter companies. The British East India Company serves as a prominent
historical example of this type. However, in post-independence India, such
companies are no longer relevant.
B.
Statutory
Companies:
Constituted
by a special Act of Parliament or State Legislature, statutory companies aim to
provide public services. While primarily governed under the Special Act, they
are also subject to the provisions of the Companies Act, 2013, where
applicable. Examples include the Reserve Bank of India and the Life Insurance
Corporation of India.
C.
Registered
Companies:
Companies
registered under the Companies Act, 2013, or any previous Company Law fall
under the category of registered companies.
You may like: Safeguarding
Minority Shareholders: Understanding Oppression and Mismanagement under the
Companies Act, 2013
2.
Companies
on the Basis of Liabilities
When we
look at the liabilities of members, companies can be limited by shares, limited
by guarantee or simply unlimited.
A.
Companies
Limited by Shares
In the case
of a company limited by shares, its members are only responsible for the value
of shares they hold at the time of its winding up.
B.
Companies
Limited by Guarantee
In some
companies, the memorandum of association mentions amounts of money that certain
members guarantee to pay. In the event of winding up, they will be liable only
to pay the guaranteed amount. Examples include clubs, trade associations, and
research associations.
C.
Unlimited
Companies
Unlimited
companies have no limits on their members’ liabilities. Hence, the company can
use all personal assets of shareholders to meet its debt during winding up.
Their liabilities will extend to cover the company’s entire debt.
Our
recommendation: Important
Solved Questions on Constitutional Law, (Updated)
3.
Companies
on the basis of size or members
A.
One
Person Companies (OPC)
This
concept was first introduced by the 2013 Company’s Amendment Act. These kinds
of companies have only one member as their sole shareholder. Section 2(62)
contains the provisions regarding the same. They are distinct from sole
proprietorships because:
I.
OPCs
are legal entities distinct from their sole members.
II.
Unlike
other companies, OPCs don’t need to have any minimum share capital.
Important features
• Single-member:
OPCs can have only 1 member or shareholder, unlike other private companies.
• Nominee:
A unique feature of OPCs that sets them apart 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, their 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.
B.
Private
Companies
Private
companies are those that follow the principle of restrictions, limitations, and
prohibitions (RLP) imposed in terms of S2(68) and also contain the word
‘Private’ in their name.
In these
kinds of companies, restrictions are imposed on the free transferability of
shares. In terms of members, private companies need to have a minimum of 2 and
a maximum of 200. These members include present and former employees who also
hold shares.
C.
Public
Companies
In contrast
to private companies, public companies do not follow the principle of RLP and
allow their members to freely transfer their shares to others. Secondly, they
need to have a minimum of 7 members, but the maximum number of members they can
have is unlimited. Some important provisions regarding these companies are:
• 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.
You may
like: Understand topics with the help of differentiations, click here.
4.
Companies
on the basis of Control or Holding
In terms of
control, there are two types of companies.
A.
Holding
and Subsidiary Companies
In some
cases, a company’s shares might be held fully or partly by another company.
Here, the company owning these shares becomes the holding or parent company.
Similarly, the company whose shares the parent company owns becomes its
subsidiary company.
Holding
companies exercise control over their subsidiaries by dictating the composition
of their board of directors. Furthermore, parent companies also exercise
control by owning more than 50% of their subsidiary companies’ shares and play
a vital role in decision-making.
Example:
Tata Capital, a wholly-owned subsidiary of Tata Sons Limited.
B.
Associate
Companies
Associate
companies are those in which other companies have significant influence. This
“significant influence” amounts to ownership of at least 20% of the shares of
the associate company.
For
example, A holds 22% in B, and B holds 30% in C. In this case, C company is an
associate of B but not of A.
Also Read:
Important questions on Contract,
Jurisprudence,
Family
Law, and Criminal
Law.
5.
Companies
in terms of Access to Capital
When we
consider the access, a company has to capital, companies may be either
listed or unlisted.
A.
Listed
company
Listed
companies have their securities listed on stock exchanges. This means people
can freely buy their securities. Therefore, only public companies can be
listed, and not private companies.
B.
Unlisted
company
Unlisted
companies, on the other hand, do not list their securities on stock exchanges.
Both public and private companies can fall under this category.
6.
Other
Types of Companies
A.
Government
Companies
“Government
company “under Section 2(45) of the Companies Act, 2013 is defined as, company
in which equal to or more than 51% of the paid-up share capital is held by the
Central Government, or by any State Government or Governments (more than one
state’s government), or partly by the Central Government and partly by one or
more State Governments, and includes the company, which is a subsidiary company
of such a Government company.
A
government company gives its annual reports which have to be tabled in both
houses of the Parliament and state legislature, as per the nature of ownership.
Some
examples of government company are National Thermal Power Corporation Limited
(NTPC), Bharat Heavy Electricals Limited (BHEL), etc.
B.
Foreign
Companies
Foreign
companies are incorporated outside India. They also conduct business in India
using a place of business either by themselves or with some other company, by
any means, as per section 2(42) of CA 2013. Sections 379 to 393 of the CA,
2013, prescribe the provisions applicable to such companies.
C.
Section
8 company, Charitable Companies
Certain
companies have charitable purposes as their objectives. These companies are
called Section 8 companies because they are registered under Section 8 of the
Companies Act, 2013.
Charitable
companies are incorporated for the promotion of arts, science, culture,
religion, education, sports, trade, commerce, etc. Since they do not earn
profits, they also do not pay any dividends to their members.
D.
Dormant
Companies
These
companies are generally formed for future projects. They do not engage in
significant accounting transactions and are not required to carry out all the
compliances of regular companies.
E.
Small
Company:
It is defined
under section 2(85) of the CA, 2013 – “small company” means a company, other
than a public company,—
I.
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
II. 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.
We thought
you might find it helpful: Judiciary
Books: Everything You Need to Ace the Judiciary Exam (Always Latest And Best)
Conclusion
In
conclusion, the classification of companies provides a nuanced understanding of
the diverse structures that businesses adopt. From the historical significance
of charter companies to the contemporary distinctions between public and
private entities, each classification serves a unique purpose in the business
landscape. Recognizing the implications of liabilities, size, control
structures, and access to capital allows stakeholders, regulators, and
investors to navigate the intricate web of corporate entities. As businesses
evolve, the frameworks outlined here continue to shape the regulatory
landscape, influencing how companies operate, grow, and contribute to the
broader economy. In the dynamic world of commerce, a thorough comprehension of
these classifications is indispensable for informed decision-making and
fostering a robust business environment.
We're on LinkedIn now!
Follow us for quick updates, insights, and more.
Hello readers!
Hope you are all having a good time here. We
are trying our best to keep you updated with available paid internship
opportunities, our thoughtfully curated
question-answer series for aspirants of judiciary as well as other
competitive exams, the latest legal developments and much more like this.
But here's the thing: we can't do it alone. We
need YOUR support to expand our endeavors, to create incentive based internship
opportunities for our community members, to bring more eminent scholars on the
board, and foster fruitful collaborations.
Here's how you can contribute:
1.
Become A Campus Leader At In Light Of Law: Gain
Experience, Develop Skills, and Make a Difference all by working just 20-30
minutes per week, Click
Here to Know More.
2.
Share Your Knowledge: Publish Your Work
With Us - Help us grow by sharing your insights and knowledge with our
community. Click here to know more.
3. Financial
Support: You can also support us with any amount you are comfortable with.
Click here to make a direct payment with your Installed
UPI app or use UPI ID:
7297911597ss@paytm for manual transfers.
Every contribution toward a goal is valuable,
regardless of how small it may be. Thank You.
Note: the content available on this
site will remain always free.
0 Comments