Types of Companies
Companies are categorized by the number of members under the Companies Act. Further, companies are categorized as micro, small, and sized under the Micro, Small, and Medium Enterprises (MSME) Act. In addition to that, companies can also be categorized based on factors such as corporate ownership and listing status. The article seeks to elaborate on each type of company.
A company is defined as follows by Section 2(20) of the 2013 Companies Act:
"A corporation organized in accordance with this Act or any preceding company law."
It can be explained as an incorporated association, an artificial person having a common seal, a perpetual succession, a separate legal entity (if any), and a common capital consisting of transferable shares and limited liability.
Features of a Company
- Artificial Legal Person: A company is considered to be an artificial legal person under the law if it has the authority to buy, sell, or otherwise dispose of any property, enter into agreements in its name, and bring legal actions against and be sued by third parties.
- Incorporated association: Upon registration with the Companies Act, a company is said to have been formed (or other equivalent act under the law). For a company to be recognized as a legal association, certain conditions must be met regarding legal documents (MOA, AOA), shareholders, directors, and share capital.
- Common Seal: Because a business is an artificial legal person, it replaces its signature with its common seal, which has the company name etched on it. Any document bearing the company's common seal is binding on the business.
- Separate Legal Entity: A firm is a distinct, autonomous legal entity from its owners or other stakeholders. A separate legal entity ensures that only the business is accountable for paying off debts and facing legal charges for its actions. The company's decisions are not subject to individual member liability. Similarly, the company is not responsible for paying the members' debts.
- Limited Liability: A company's liability may be limited by a guarantee or shares. The unpaid value of each shareholder's shares is the extent of their liability in a company limited by shares. In contrast, if a company limited by a guarantee dissolves, Only the amount of their agreed-upon contributions to the firm's assets are subject to the members' obligation.
Types of companies
A company can be divided into different types based on the following criteria:
Mode of Incorporation
● Statutory Companies:
These companies are organized under a unique law issued by the federal or state legislature. These companies are intended to conduct important national business. For instance, the Reserve Bank of India was established under the RBI Act of 1934.
● Registered or Incorporated Companies:
According to the government-passed companies' legislation, these businesses are created or incorporated. However, only once they have registered under the statute, and the Registrar of Companies issues the certificate of incorporation, do these companies come into being.
● Royal Chartered Companies:
The monarch, or by the special command of a king or queen, establishes these companies under a special charter. Royal chartered firms include the BBC, East India Company, Bank of England, and other businesses.
Liability of the members
● Companies Limited by Shares:
These companies have a set share capital, and the memorandum limits each member's liability to the amount of the face value of the shares he subscribed for.
● Companies Limited by Guarantee:
The memorandum restricts each member's liability to the sum they agreed to pay if the company must be liquidated to pay its debts and liabilities. These firms may or may not have a share capital.
● Unlimited Companies:
The sum that a shareholder or company member must pay in the case of the liquidation of an unlimited corporation is not capped by law.
● Foreign Company:
According to Section 2 of the 2013 Companies Act (42),
Any business or organization that was incorporated outside of India is considered a foreign company-
- has a presence in India, either directly or through an agent, or both physically and virtually.; and
- carries out any business operations in India in any other way.
● Indian Company:
A business created and registered in India.
Number of Members
● Public Company:
According to this definition, a public company is "a firm which is not a private company," as stated in Section 2(71) of the Companies Act, 2013.
A company whose ownership is accessible to the public is known as a public company. So, any person can purchase shares in a public company. There are no restrictions on the number of shareholders or the transferability of shares in a public company. Still, there are certain restrictions, though
A public business must have three directors and a minimum of seven members. Before allocating shares, it must publish a prospectus or file a statement instead of a prospectus with the Registrar.
● Private Company:
It is defined under Section 2(68) of the Companies Act, 2013. A private company restricts the number of members, the ability to transfer shares, and the invitation of the public to subscribe to any shares or debentures of the company. A private company is also not allowed to be held by the general public. A private corporation is a separate legal entity having a minimum of two shareholders, a maximum of 200 shareholders, and a minimum of two directors, one of whom must be an Indian resident and possess the correct company name and address.
● One-Person Company:
The Companies Act of 2013's Section 2(62) defines a one-person corporation as one with just one member.
One-person companies are Indian private limited companies with just one founder or promoter. A natural person who lives in the country should be the founder. Additionally, there are minimum requirements for paid-up capital, i.e., Rs. 50 lacs and an average annual turnover of Rs. 2 crores for one-person companies in the three immediate preceding FYs. These companies enjoy several privileges and exemptions offered by the Companies Act 2013.
● Section 8 Company (NGO):
Section 8 of the Act allows a group of people or individuals to register a company for charitable purposes. These companies are formed to promote social welfare, charitable giving, environmental preservation, science, art, education, sports, and other initiatives. The company should use its earnings to advertise its activities. These companies seek to forbid their members from receiving any dividend payments.
● Micro Company:
A micro company is one whose annual turnover does not exceed Rs. 5 crore and whose investment in equipment, plant, and machinery does not exceed Rs. 1 crore.
● Small Company:
A small company is one whose annual turnover does not exceed Rs. 50 crores and whose investment in plant and machinery does not exceed Rs. 10 crores. The Companies Act 2013 provides smaller companies with a variety of benefits as well. The Companies Act of 2013 specifies that a company qualifies as a small business if its paid-up share capital is less than Rs. 2 crores and its annual revenue is less than Rs. 20 crores.
● Medium Company:
If a company's yearly revenue is less than Rs. 250 crores and it invests less than Rs. 50 crores in equipment, it is regarded as medium-sized.
● Holding Company:
A holding company is a business that controls the majority of the voting shares of another business (subsidiary company). The holding company is the parent company that controls the subsidiary company's management, assets, and policies. However, it doesn't participate in the day-to-day operations of the subsidiary company.
● Subsidiary Company:
A subsidiary company is wholly or partially owned by another company (holding company). It means that the composition of the board of directors, or more than 50% of the voting power on the subsidiary company, is controlled by the parent company. The subsidiary company is referred to as a Wholly Owned Subsidiary (WOS) of the holding company when a single holding company has 100% of the voting power.
● Associate Company:
A company in which another company holds significant influence (minimum 20% of total voting power or controls or participates in the business decisions) is not a subsidiary company and includes a joint venture.
According to the Company Act, a company is a fictional, invisible, intangible person that only exists in the mind of the law. As a result, it possesses qualities that its creation bestows onto it or that are either manifested in its existence. It is a group of people who each contribute financially to it and split any profits or losses. It is a type of investment with unique dangers. Larger companies are riskier and have two types of restrictions: finite resources and unlimited partner liability. Major companies must efficiently employ and maximize their organizational and management capabilities to support their own internal operations and any restrictions placed upon them. These corporations have investors all around the world. The three main types of commercial organizations are a company, a partnership, and a sole proprietorship. A corporation may be defined and classified in various ways, and the kind of classification of a company will vary substantially. Even though they are similar in origin and function, "iEdunote" is a Limited Liability Company (LLC) in the US and a PLC in the UK.