When we talk about a company, the first thing that comes to mind is a glass building having lavish interiors with brilliant people running the business. However, while comparing the imagination to reality, it is limited to the people running such company. The walls of a company office may be made of concrete or glass, it does not matter, and its interiors also do not have much impact on its existence. But who runs it, the capital, business, turnover, etc. have a great say on what kind of company it will be. Here, we are addressing the various types of companies under Companies Act based on different characteristics, explaining each one in simple words.
Types of Companies under Companies Act, 2013
Number of Members
- Public Company
Among the types of companies under Companies Act, 2013 which are not a private company, having the prescribed minimum paid-up share capital is called a public company as per Section 2(71) of the Act. A Public Company can be formed by 7 or more persons. A Public Company can issue securities to the public, through private placement, or through the rights issue or bonus issue. The securities or other interests of members of a public company are freely transferable.
- Private Company
A private company as per the Section 2(68) of the Companies Act, 2013 is one having minimum paid-up share capital as prescribed by the government. In addition, the articles of a private company restrict the right to transfer shares, limits the number of members to 200, and prohibits invitation to the public for subscription to any securities of the company. Two or more persons can start a private company.
- One Person Company
As the term suggests, a company having only one person as a member is called a one person company. When such a company is sought to be registered, the memorandum indicates the name of the other person who shall become the member of one person company in case the sole subscriber dies or becomes incapable to contract. In a similar scenario, such other person becomes the member of the company with his/her written consent.
Also check – Basics of Trade Marks by Advocate Deepika Khinder
Types of Companies Based on Liability of Members
- Unlimited Company
Among the types of companies under Companies Act, 2013, the members of an unlimited company do not have any limit with respect to their liability in case of winding up. It is often given a footing similar to a private company limited by shares. Such a company may or may not have a share capital. A Public company cannot be an Unlimited Company.
- Company Limited by Guarantee
Section 2(21) defines a company limited by guarantee as one wherein the liability of its members is limited by memorandum to an amount which the members undertake to contribute to the company assets in the event of winding up of the company. When seeking registration of a company limited by guarantee, such an application has to be accompanied by a declaration regarding contribution of each member in this regard.
- Company Limited by Shares
Section 2(22) of the Companies Act defines a company limited by shares as one having the liability of its members limited by memorandum, to the amount of unpaid shares held by them. Among the types of companies under Companies Act, 2013, the liability of members of such a company is restricted to the amount unpaid on shares held by them. A company limited by shares can be registered under the Act only if it has a permanent paid-up or nominal share capital of fixed amount divided into shares, of a fixed amount/transferable as stock/divided and held otherwise.
Based on Size
- Small Company
A small company under Section 2(85) is defined as one which has a paid-up share capital below 50 lakhs, or below 5 crores, as may be prescribed, whose turnover is within 2 crores or 20 crores, as may be prescribed. It may be noted that a public company cannot be a small company. The provisions of a small company are not applicable on specific types of companies under Companies Act – including a holding company, an NGO or a company governed by any Special Act.
** There are Medium Sized and Micro Companies as well, but there is no specific mention about the same in the Companies Act, 2013.
Types of Companies under Company Law Based on Control
- Holding Company
In general, a holding company may be understood as one holding another. Section 2(46) of the Companies Act, 2013 defines it as – “―holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies”. A holding company controls a subsidiary in different ways, be it the ownership of shares, participation among the Board Members, etc.
- Subsidiary Company
A subsidiary company, as defined under Section 2(87) of the Companies Act, 2013, is one wherein its holding company controls the composition of the Board of Directors, and has control over more than half of the total share capital. There can be one subsidiary to a holding company, or there could be a layer of subsidiaries as well (in a prescribed manner). This means that a subsidiary to a holding company can be a holding company to another company. A subsidiary company cannot own shares of its holding company. In fact, share allotment of holding company to its subsidiary is void.
Access to Capital
- Listed Company
As per Section 2(52) of the Companies Act, 2013, a listed company is one which has its securities listed on a recognized stock exchange. It could be all the securities or a limited stake. Once the shares are quoted on a Stock Exchange, anyone can buy the shares of a listed company and pursue stock trading. It may be noted that a listed company cannot buy its own shares unless its a buyback, which is authorised by the Articles and a Special Resolution passed in a General Meeting of such Listed Company.
- Unlisted Company
Among the types of companies under Companies Act, 2013, all the companies which are not listed with any of the Stock Exchanges fall under the category of an unlisted company. Such companies are owned by private investors. Being an unlisted company, it cannot raise capital from the general public and relies on its owners for capital.
Types of Companies Based on Ownership
- Government Company
As the term suggests, unlike the other types of companies under the Companies Act, 2013, wherein private people hold the stake, this one has the government in charge. A Government Company has at least 51% of paid-up share capital held by the Central/ State Government, wholly or partly shared.
- Foreign Company
Foreign in general hints at ‘other than one’s own’, ‘strange or unfamiliar’. A foreign company as defined under Section 2(42) of the Companies Act, 2013 is a company incorporated outside India, having a place of business in India (physically or through electronic mode) or conducts its business in India in any manner.
- Associate Company
As the term suggests, it is a company associated with another company. Section 2(6) of the Companies Act, 2013 defines an associate company in relation to another company as “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.” Here, significant influence has hinted at minimum control of 20% of share capital, or business decisions in accordance with an agreement.
- Non-Profit Organisation
What we generally call a Non-Profit Organization is an association working for a particular cause. Section 8 of the Companies Act, 2013 lays about issuance of license by the government to form a limited company for a person or association of persons whose object is promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object, etc. In addition, they must intend to promote its objects with the profits and not to pay the dividends to its members. Just like the other types of companies under Companies Act, 2013, a Non-Profit Organization is also subject to all the obligations pertaining to a limited company, and enjoy all the privileges respectively.
- Dormant Company
Dormant in general means ‘temporarily inactive or inoperative’. As per Section 455 of the Companies Act, 2013, a company formed for a future project/holding an asset or intellectual property, and has been an inactive company with no significant accounting transaction, may apply to the Registrar of Companies seeking the status of a dormant company. The Registrar may in turn issue a certificate and also maintain a register in this regard. There are certain requirements for a dormant company including minimum number of Directors, and payment of annual fee, which if not complied may lead the Registrar to strike off its name from the register of dormant companies.
