Types of Company : Companies Act, 2013

Company is one of the most popular types of business arrangement in India which is widely opted by entrepreneurs and non-individual entities to run business and achieve their objectives. In India, Companies Act, 2013 governs the regulation of companies and all types of compliances. The act is framed to provide a legal framework for the formation of companies covering the ambit of incorporation, compliances, accountability, management, etc. Earlier before the Companies Act 2013, the Companies Act, 1956 was in operation. The main aim behind passing this legislation is to ensure transparency and make sure fair trade practices are incorporated uniformly.

The provisions of Section 2(20) of the Companies Act, 2013 define a company as a “Company incorporated under this act or any previous company law.” A company is an artificial person, which is created by law that has a separate legal entity, perpetual succession, common seal, and limited liability. There can be several factors that can affect the classification of the company such as size of the company, ownership structure, intended business activity, country of origin, and liability of owners.

Geeky Takeaways:

• A company is a legal entity that is formed by a group of individuals to engage in and operate a business organization in a commercial or industrial capacity.
• The business line of a company depends on its structure which can range from a partnership to a proprietorship, or even a corporation.
• A company is purposely organized to earn profits from running its business.

A. Types of Company Under Companies Act, 2013

Different types of companies can be registered under Companies Act, 2013 in India to conduct their business and provide a legal structure for their business. The different types of companies are as follows:

1. One-Person Company

• OPC is a type of private company that has only one member. OPC was introduced with the main aim of promoting entrepreneurship and corporatization of business.
• However, it is to be noted that an OPC is different from a sole proprietership, as an OPC is a separate legal entity and the member of the OPC has limited liability, whereas in the case of a sole proprietership the liability of the owner is not limited. There is no minimum paid-up capital required for constituting OPC.
• However, only a natural person who is an Indian citizen resident or otherwise stayed in India for not less than 120 days during the immediately preceding financial year shall be eligible to incorporate an OPC or to be a nominee for the sole member of an OPC. No minor can become a member or a nominee in OPC. Also, OPC cannot be converted into a company registered under section 8 of the Act.

2. Private Limited Company

• A Private Company as mentioned under Section 2(68) of the Companies Act 2013, has a minimum of 2 members and a maximum of 200 members, however, this figure shall exclude employees and ex-employees who are also the shareholders in the company.
• A Private Company cannot invite the general public to subscribe to their shares/debentures. Shares of private companies are not freely transferable and these shares can’t be transferred. A private company should have Private Limited as a suffix in its name.

3. Public Limited

• A Public Company is defined in Section 2(71) of the Companies Act, 2013. To establish a Public company, a minimum of seven members is required and there is no ceiling limit on the number of maximum members. In the case of a Public company, there are no restrictions on the buying and selling of shares.
• Any subsidiary of a public company shall be deemed to be a Public company. The shares of a Public company can be freely transferred. A Public company that has limited liability is required to add the word ‘limited’ at the end of the name. A Public company should have ‘limited; as a suffix in its name.
• In case a company does not comply with the specified provisions of the Companies Act, it will renounce the status of a Private company. To transform a Public company into a Private company, the company is required to adopt a special resolution at the general meeting; i.e., 75% majority.

4. Section 8 Company

• Section 8 Companies, also known as companies formed with charitable objects. According to section 8 of the Companies Act, 2013, these companies are formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, environment conservation etc.
• Such companies are required to apply their profits back to promote their objectives. Section 8 companies can’t pay dividends to their members. Central Government has strict control over Section 8 companies and in case such a company fails to fulfill the statutory requirements of the act, the central government may revoke the license or may issue an order as may seem fit.

B. Types of Company Based on Size

1. Micro Company

• The MSME Act has classified companies based on their size to give them benefits provided by the government.
• Micro companies are those companies whose investment in plant and machinery is not more than ₹1 crore, and the annual turnover of such companies does not exceed ₹5 crores.

2. Small Company

• A Small Company is a company whose investment in plant and machinery does not exceed more than ₹10 crore, and the annual turnover does not exceed ₹50 crore. The Companies Act, 2013, also provides several benefits to small companies.
• A company with a paid-up share capital of below ₹4 crore and an annual turnover of below ₹40 crore is called as a small company under the Companies Act.

3. Medium Company

• A Medium company is a company whose investment in plant and machinery does not exceed ₹50 crore, and the annual turnover of such company does not exceed ₹250 crore.

C. Types of Company Based on Liability

1. Company Limited by Shares

• According to the provisions of Section 2(22) of the Companies Act, 2013, when the liability of the members of a company is limited by its MOA to the amount of unpaid shares (if any) held by them, in such case it is known as a Company Limited by Shares.
• In this case, the shareholder may be called upon to contribute only to the extent of the amount due on his shareholding, for meeting the debts of the company. However, the separate property of shareholders cannot be encompassed to meet the company’s debt.
• As the company is a legal person in the eyes of the law, ownership of assets remains with the company only. Although, a shareholder is a co-owner of the company, but he is not a co-owner of the company’s assets. The rights and duties of a shareholder as co-owner are considered by his shareholdings.

2. Company Limited by Guarantee

• It is defined under section 2(21) of the Companies Act, 2013. A Company Limited by guarantee means the member’s liability is limited to the amount they guarantee to contribute towards the assets of the company.
• Here in this case, the liability of the member of a Company limited by Guarantee is limited up to an agreed sum mentioned in the memorandum. Members are required to contribute the agreed amount only in case of winding up of the company and only to the extent of the amount mentioned in the memorandum.

3. Unlimited Company

• According to the provisions of Section 2(92) of the Companies Act, 2013, Unlimited company is a company that does not have any limit on the liability of its members. In an Unlimited company, the liability of a member ceases only when he ceases to be a member of that company. The liability of each member ranges to the amount of the company’s debts and liabilities, however, they will be entitled to claim contributions from other members.
• In case the company has a share capital, the Articles of Association must state the amount of share capital and each share amount. The creditors can initiate proceedings for winding up of the company for their claims and the official liquidator may call upon the members to contribute towards the liabilities and debts of the company.

D. Types of Company Based on Control

1. Holding Company

• A Holding company is a parent company, which holds sufficient voting shares in another company. The shareholding pattern is arranged in such a way that the Holding company can control the policies and affairs of its subsidiary company and oversee the management decisions.
• Control can either be through holding ownership or by management. For example, Alphabet Inc. is the holding company of Google.

2. Subsidiary Company

• According to the provision of Section 2(87) of the Companies Act, 2013, a Subsidiary Company is a company where the Holding company can control and manage the composition of the Board of Directors or exercise control over more than half of the subsidiary’s voting.
• Control can be determined in case the Holding company has the right to appoint or remove the majority of the board members.

E. Types of Company Based on Listing

1. Listed Company

• According to the definition provided in Section 2(52) of the Companies Act, 2013, a listed company is a company that has any of its securities listed on any recognised stock exchange within India or outside India. It is to be noted that such class of companies, which have listed or intend to list a prescribed class of securities, as may be prescribed in consultation with the SEBI, shall not be considered as listed companies.
• The shares of listed companies can be traded freely on the stock exchanges. Listed companies are strictly regulated by the Securities Exchange Board of India (SEBI). A company that wishes to list its shares on stock exchanges can issue a prospectus to the general public for subscribing to its securities.
• A company can also list its shares via an Initial Public Offer (IPO), whereas a company that is already listed company can make a Further Public Offer (FPO). Only public companies can be listed. For example, TATA technologies, Adani Ports, Titan, MRF, etc. are listed companies.

2. Unlisted Company

• An Unlisted company is a company that is not listed on any recognised stock exchange in India or outside India. Neither of its securities are freely traded on any stock exchange. Unlisted companies can’t gather funds from the general public, they have to fulfil their capital requirements by obtaining funds from friends, family members, relatives, financial institutions, or through private placement.
• To convert into a Public company, an unlisted company must issue a prospectus if they wish to list their securities on the stock exchanges. There is no available market to buy or sell shares of unlisted companies, and for the same reason the shares of these companies aren’t liquid. Public and private companies comes under this category.

Conclusion

The Companies Act, 2013 is an umbrella act for the regulations of companies. Companies Act, 2013 has replaced Companies Act, 1956 which was earlier in force with major amendments. There are several factor on which the classification of companies is depends such as size of the company, ownership structure, intended business activity, country of origin, and liability of owners. In India, Companies Act, 2013 governs the regulation of companies and all types of compliances. Companies Act is framed to provide a legal framework for the formation of companies covering the ambit of incorporation, compliances, accountability, management, etc. The Companies Act has specified different classification of companies in order to maintain the regulatory requirement as per different classes.

Frequently Asked Questions (FAQs)

1. When did Companies Act, 2013 came into force?

Answer:

Companies act was brought into force stage wise. Section 1 of this act came into force on 30 August, 2013. 98 different sections came into force on 12 September 2013, with a few changes. A total of another 183 sections came into force from 1 April, 2014.

2. What are the factor on which classification of a company depends?

Answer:

The classification of the company depends on the following factors, such as:

• Size of the company
• Ownership structure
• Intended business activity
• Country of origin
• Liability of owners

3. What is a Section 8 company?

Answer:

Section 8 Company, also known as companies formed with charitable objects. According to section 8 of the Companies Act, 2013, these companies are formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, environment conservation etc.

4. What is a Medium Company?

Answer:

A Medium Company is a company whose investment in plant and machinery does not exceed ₹50 crore, and the annual turnover of such company does not exceed ₹250 crore.

5. Who regulates Listed companies?

Answer:

Listed companies are strictly regulated by the Securities Exchange Board of India (SEBI). Listed company is required to follow regulatory and statutory requirements as notified by SEBI.