Kinds of Companies in India

A Company is a legal entity formed by a group of individuals to engage in and operate a business. Usually, the common objective is to earn a profit by engaging in a company and it is better to get the company registered for any future disputes. Different types of companies are charged with different taxes, so it is vital to know their differentiation. The author has placed the lens on the different types of companies under Companies Act, 2013, and the importance of having different companies and how the Companies Act 2013 was vital and how it impacted the growth of economic and business activities.

Introduction

As per section 2(20) of Company Act 2013, A company is defined as “a company incorporated under this Act or any previous company law”. There are different kinds of companies under the act, but one should choose their type depending on the specific nature, suitable rules and regulations, etc., A company under company Act 2013, is a separate legal entity and it can sue and be sued by anyone. A company has a perpetual succession even if there is any death of its members. Another important feature is it has the only limited liability of its members. While these are important features of a company under the Companies Act, parties can choose any type of company that will suit them and works for their benefit. A lot of new features and different types of companies are introduced in the Companies Act 2013 according to the needs of the people.

Kinds of Companies

Based on Incorporation

1.Statutory Companies

The Companies that are constituted by a special act of Parliament or state legislature. It has a service motive rather than the usual profit motive objective and it is fully funded by the government and they are answerable to the legislature. The duties, powers, and functions are all decided by the act of the legislature. Example of such type of companies is Reserve Bank of India, Air India.

2.Registered Companies

Companies registered under the Companies Act are called registered Companies. There are many advantages of getting the company registered when compared to nom registration. The features of the companies discussed above will apply only when the company gets itself registered.

Based on liability

1.Limited by shares

According to Section 2 (22) of the Companies Act, 2013 “ A company that is limited by shares refers to a company that has the liability of the members limited by such an amount that is unpaid on their respective shares”  The liability of the member will be limited to the amount that he hasn’t paid and not more than when they are fully paid up. It can be enforced during the lifetime of the company or during winding up.

2. Limited by Guarantee

Section 2(21) of Companies Act 2013 defines companies limited by guarantee as “a company having its liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up”. It is a company that has the liability of its members who will act as guarantors in the event of its winding up. The amount of liability will be undertaken as per the memorandum to contribute to the assets of the company. The profits earned by the company are reinvested in the company to use it for different purposes This is a preferred structure for non -profit organizations, clubs, trusts, etc.,

Unlimited Liability Companies

As per Section 2(92) of the Companies Act 2013, Unlimited Company means a company not having any limit on the liability of its members. The liability of each member extends to the whole amount of the company’s liabilities but he will be entitled to claim contribution from other members. A difference between Unlimited Liability companies and unregistered companies is that the former will have the features of a company and the latter will not. They both are the same based on liability.

Basis of the number of members

1.Public Company

As per Section 2(71) of Companies Act, 2013 “ A public company means a company which is not a private company” Public company may be formed for any lawful purpose by 7 or more persons.[1] For a public company, there should be a minimum of 3 directors on its board.[2] In a public company, a prospectus must be issued by the company to the public stating its affairs of the company. It should have a minimum paid-up capital and the liability of its members is limited. 

2. Private Company

As per Section 2 (68) of the Companies Act, 2013 Private companies mean, “such Companies whose articles of association restrict the right to transfer its shares and limits the number of its members to 200 hundred people.”. The minimum people that is required is two and it does not require any minimum capital required. The transferability of shares is restricted. There is also no need to appoint independent directors.

3.      One Person Company(OPC)

According to Section 2(62) of the Companies Act, 2013 One Person Company means “A company which has only one person as a member”.  This was introduced only in the Companies Act 2013 and not before. OPC can have only one single member and the member has to nominate a nominee while registering the company where the nominee will choose to be its member or not once the member dies. OPC does not have to hold annual general meetings, Provisions on Independent directors doesn’t apply to them and they can pay more remuneration to their directors.

Based on Domicile

1.      Foreign Companies

As per Section 2(92) of Companies act 2013, “foreign company” means any company or body corporate incorporated outside which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other manner. Rule 2(h) of the Companies (Specification of definitions details) Rules, 2014 defines the word ‘electronic mode’ where the same encompasses all electronic-based transactions and includes online services and all related data communications services whether conducted by e-mail, mobile devices, cloud computing, social media, data transmission or otherwise. According to this, a foreign e-commerce website without any physical presence here, also would attract the provisions of Company Act, 2013.

2.      Indian Company

 A company formed and registered in India and conducting business activity in India is known as the Indian Company. Here there is no confusion as to whether one is an Indian company or not because every business activity of the company is conducted here, so it is an Indian Company.

·Other types of Company

1.      Government Company

Government Company is a type of company in which the Central Government or by any State governments partly by Central government and State government holds not less than 51% of the paid-up share capital.[3]

2.      Small Company

Small Company is another form of company which means a company, other than the public company which has paid-up capital which does not exceed 50 lakhs rupees or such higher as may be prescribed which shall not be more than 10 crore rupees and turnover of the preceding financial year doesn’t exceed 2 crore rupees or the higher amount which shall not be more than 100 crores.[4]

3.      Subsidiary Company

Subsidiary Company with any other company means a company in which the holding company controls the composition of the Board of Directors or exercises or controls more than one-half of the total voting power as either on its own or together with one or more of its subsidiary companies.[5]

4.      Holding Company

Holding companies with one or more companies means a company of which such companies are subsidiary companies.[6] This is where the holding companies take control of the subsidiary companies.

5. Dormant Company

Dormant Company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such an inactive company may make an application to the Registrar for obtaining the status of a dormant company.[7]

Conclusion

Companies occupy a vital role in today’s economy and there are lots of companies today, and although companies were there before, the 2013 amendment to the Company law brought in some important types of companies like One Person Company (OPC) and many such others. Due to changes in technological and economic environments, the need and the requirement of different kinds of companies are required providing dynamic options and encouraging people to use company over other business structures. While starting a company over any other type of business structure has many advantages one of them being liability protection., the one starting a company would want to look at various types that we discussed and create a company that suits him.

FAQs

  1. Why choose Company over other business structures?
  2. Different types of Companies under the Companies Act 2013?
  3. What are the advantages of getting the Companies Registered?
  4. The difference in the types of Companies between the Act in 1956 and 2013?
  5. What is the Importance to have different types of Companies under the Companies Act 2013?

References


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