Types of Companies
Table of Contents
Classification of Companies
The Primary Classification
Companies are divided into two categories: private and public. Private firms, often known as private limited companies, are closely held businesses with fewer than 200 shareholders. Limited firms with more than 200 shareholders that are listed on a stock market are known as public corporations. The 2013 Act created a new type of corporation called a One Person Company, which is a private company in theory. A One Person Company, as the name implies, is made up of only one person. An OPC must be formed by a natural person who is a citizen of India and resides in India at the time of creation. In OPC, a minor cannot be a member or a nominee of a member. By forming a corporation, the OPC allows sole proprietors to benefit from the advantages of restricted liability. Different Types of Companies in Company Law in India, Classification of Companies.
Control-Based Classification is a method of classifying items based on how they are controlled.
Companies are divided into the following categories based on their level of control:
Holding Company
Control of the Board of Directors or control of the share capital establishes the connection between holding and subsidiary businesses. In the following circumstances, one business will be a holding company for another:
Controls the makeup of the other company’s Board of Directors.
Controls or possesses more than 50% of the entire share capital, either alone or in conjunction with one or more of its subsidiary businesses.
Associate Company
If one firm has substantial influence over another, the latter becomes the first company’s Associated Company. Ownership of at least 20% of the entire share capital, or business decisions made under an agreement, confers massive impact.
Liability-based classification is a method of categorizing people based on their level of responsibility.
Companies are divided into the following categories based on their liability:
Limited shares Company
This is the most common business structure. Members’ liability is typically restricted in firms unless the memorandum and articles of association state differently. In this situation, the members’ responsibility is limited to the face value of the shares and the premium payable on those shares. A limited liability corporation (LLC) can be either private or public.
Limited Guarantee Company
A corporation limited by guarantee is one in which the members’ liability is restricted by the memorandum to an amount that each member agrees to pay to the company’s assets in the event that it is wound up.
Unlimited Liability Corporation
An unlimited firm is one that has no restrictions on how much money it may make. The members’ responsibility will not end till the full payment is made. A corporation like this may or may not have its share capital.
Access to Capital is used to classify companies.
Companies are categorized as follows based on their ability to get financing.
Unlisted Company
An unlisted business is one whose securities are not registered on any of the stock markets. Such businesses are unable to seek financing from the general public by releasing a prospectus. An unlisted firm, on the other hand, may issue shares through a Private Placement or to obtain private equity investment.
Listed Company
A listed business is one whose securities are listed on at least one stock exchange. The provisions of listing must be followed by such a firm.
On the basis of size
Organizations were not previously categorized based on their size, but the introduction of the “Small Company” categorization in 2013 created the need for it. Any business that isn’t a small business is classified as either a mid-size or a large business.
Small Company
Small Companies are defined as businesses with a paid-up share capital of less than fifty lakh rupees or any prescribed amount less than five crore rupees, and a turnover of less than two crore rupees or any prescribed amount less than twenty crore rupees as of their most recent profit and loss account.
Object-Based Classification is a type of classification that is based on the objects themselves.
This classification is depending on a company’s goal, which might be profit-oriented or not.
A company that is not for profit
A not-for-profit organisation is one whose main aim is to promote trade, art, research, sports education, science, welfare programs, culture, charity, environmental protection, or any other useful purpose without regard for profit. Profits or other sources of money must be used to promote the company’s goals. It is not required to pay any dividends to its shareholders. 8th section A corporation is the only form of business that is not for profit.
Classification based on the number of shares held
Companies are divided into the following categories based on the number of shares they own.
Government-owned business
A Government company is one in which the Central or State Governments own at least 51 per cent of the paid-up share capital, or partially by the Central and State Governments, and encompasses any business that is a subsidiary of a government company.
The company from another country
Any corporation or body corporate formed outside of India that has a place of business in India and engages in any business activity in India is referred to as a foreign company. Different Types of Companies in Company Law in India, Classification of Companies.
FAQ
How many types of a company are there?
There are three types of companies in India dependent on the number of members/shareholders:
- public limited company
- private limited company
- one-person company
What is the best type of business for a startup?
A sole proprietorship or Limited Liability Partnership (LLP) is appropriate for startup owners who desire sole or primary control over their business and its operations, although this may also be bargained while forming a partnership arrangement. The same may be true about companies at the beginning.
What company structure is best?
The majority of small enterprises begin as Limited Liability Partnership (LLP) or Private Limited Company (PLC). If you don’t need to recruit investors, an LLC is most likely the ideal form for your company. You intend to reinvest the majority of your profits into the company each year.
What are the types of company formation?
The types of company that be incorporated are as follows:
- Private Limited Company.
- Public Limited Company.
- Limited Liability Partnership.
- One Person Company.
- Section 8 Company. Different Types of Companies in Company Law in India, Classification of Companies.
