Types of Companies under Companies Act, 2013

There are about 18 types of companies that exist in India. How many could you name? Don’t worry you can name it all after reading this blog. In our country, various forms of business organizations are observed, such as sole proprietorship, limited partnership, Limited Liability Companies, companies, etc. However, with the rapid growth of the economy, the “corporate” form of business organization, or other forms gradually began to disappear. Different types of companies may look quite similar, but they all have certain distinct characteristics. So let us discuss the types of companies under the Companies Act, 2013.

What is a company under the Companies Act 2013?

Before going to the types of companies, it is very important to understand the meaning of company, defined under Section 2(20) of the Companies Act 2013, according to the section, a company is an association of persons that has a separate legal entity and has perpetual succession. The company’s capital is divided into small denominations known as “shares”.

The term “separate legal entity” means that the company has a separate existence from its shareholders. A company can hold assets in its name and can sue or be sued. Similarly, “perpetual succession” means that members may come or go, but the company remains forever.

List of varieties of Company

Here is a list of all the different types of companies under the Companies Act 2013:

• Statutory Company
• Registered Company
• Company limited by shares
• Company limited by guarantee
• Company with unlimited liability
• Public Company
• Private Company
• One Person Company (OPC)
• Foreign Company
• Indian Company
• Section 8 Company
• Government Company
• Small Company
• Subsidiaries
• Holding Company
• Associated Company
• Production Company
• Dormant Company

Types of companies based on liability

Based on liability companies can be divided into 3 parts-

• Companies limited by shares: It refers to a company in which the liability of its partners is limited to the amount specified in the partnership agreement. However, any unpaid amount on the share may be called upon to settle the liability. Liability against partners can be enforced during the existence of the company even during liquidation. It is important to note that no amount can be claimed from the members after the shares have been fully repaid.
  For example- X is a shareholder who has paid 75 for a share with a face value of 100. The company can call upon X to pay only the remaining 25 rupees and not exceed that amount. By far the most important are limited liability companies.

• Companies limited by guarantee: In this type of company, the liability of the partners is limited to the amount they undertake to contribute to the assets of the company in the event of its dissolution. Simply put, the liability of the shareholders is limited by the amount of the guarantee they give in the partnership agreement.
  During the liquidation of the company, the members are placed in the position of guarantors for the fulfillment of the company’s debt. Examples of such societies are clubs, trade associations, research associations, etc.

• Companies with unlimited liability: It applies to those companies that do not determine the liability of their members. Members’ liability is unlimited and their assets can be used to satisfy the company’s debt. They may or may not have share capital.

Types of companies based on company incorporation

Based on the establishment, companies can be divided into 2 categories.

• Statutory Companies: It applies to those companies which are incorporated by a special Act of Parliament or State Legislature. The main objective of this type of company is to provide a public service. Since they are established under a separate law, the Companies Act, 2013 has limited scope for them. If there is any conflict, the Special Act for the circumstance will prevail over the Companies Act, 2013.

• Registered Companies: Companies that are registered under the provisions of the Companies Act, 2013 or any previous Companies Act are called registered companies. This type of company is formed when they have received a certificate of incorporation (ROC).

Types of companies based on the number of members

In this category, companies can be divided into 3 parts –

• Public Companies: A public company is defined in Section 2 (71) of the Companies Act of 2013. To establish a public company, it is necessary to have at least 7 partners. One of the special features of a public company is that there are no restrictions on the buying and selling of shares. Section 58 stipulates that the shares of a public company are freely transferable. If the company does not comply with the above provisions, it will renounce the status of “private company”. To transform a public company into a private company, it is necessary to adopt a special resolution at the general meeting (3/4 majority).

• Private companies: A private company [Section 2(68)] refers to an association of persons whose maximum number of members is limited to 200. A private company cannot invite the general public to subscribe to its shares or debentures. Shares in a private company are not freely transferable and cannot be transferred. All such restrictions must be expressly stated in the Articles of Association (AOA). As with a public company, a private company can change its status by passing a special resolution (3/4 majority) at the general meeting.

• One-Person Company (OPC): According to Section 2(62) of the Companies Act 2012, a sole proprietorship is a company that has only one person as a partner or shareholder. The board of directors must have 1 director and its only member can also hold the role of director. In this type of company, the term “nominee” assumes the highest importance because, after the death of the original member, the business of the company would cease. It is therefore necessary to mention the name of the candidate when registering such a company. It is not followed in other types of companies because they have perpetual succession.

Types of Companies in India Based on Residence

• Foreign companies: According to Section 2(42) of the Companies Act, 2013, “foreign company” means any company or body corporate having its place of business or carrying on business in India (through itself or its agent). The provisions listed in Section 379 -393 apply to this type of company.

• Indian companies: It applies to those companies where incorporation and registration are done in India. It is an umbrella term and almost all other types of companies fall under it.

Other types of companies in India

• Section 8 Company: A company registered under Section 8 of the Companies Act 2013 is a Section 8 Company. It is also known as a non-profit company. The features of this company are:
  The object of the company is the promotion of commerce, art, science, sport, education, research, welfare, religion, charity, environmental protection, or any other object;
  • Any profit achieved will be used to achieve the company’s goals.
  • It prohibits the payment of dividends to its members.
  • A Section 8 company is exempt from using “Ltd” or “private Ltd” as a suffix to its name.
  • Government companies
  • A government company is a company in which the Central Government, State Government, or a combination holds at least 51% of the paid-up share capital.
• Small companies: According to Section 2(85) of the Companies Act 2013, “small company” means a company other than a public company in which the following conditions are met—
  • • share capital paid up not exceeding 50 lakh rupees.
    • Turnover for the previous year does not exceed 2 crore rupees in the previous year.
• Subsidiary Company: According to Section 2 sub-section 87 Companies Act of 2013, a subsidiary company is a company in which the holding company-
  • • Manage and control the composition of the board of directors. Control can be determined if the holding company has the right to appoint or remove a majority of the board members.
    • Exercise control over more than half of the subsidiary’s voting rights.
• Holding companies: The definition of a holding company is given in Section 2 (46) of the Companies Act of 2013. It is a company of which these companies are subsidiaries.

• Associated companies: According to Section 2(6) of the Companies Act 2013, an associated company means a company in which another company has substantial influence but is not a subsidiary of the company exercising influence. The term “significant decision” means the power to control at least 20% of the total voting rights or participation in the management affairs of an affiliate.

• Producer Companies: It refers to a legally recognized association of farmers/farmers to improve their standard of living and ensure stable income and profitability. Some conditions for Producer Company-
  • • Only a person working in the primary sector can be a member of such a company.
    • The company name ends with the words “Producer Company Limited”.
    • The minimum and maximum number of directors in a production company are 5 and 15 respectively.
• Sleeping or Dormant Companies: It refers to a company that has not carried out its business or carried out significant accounting transactions in the last 2 financial years.

Final words

The Companies Act 2013 provides for different types of companies based on various factors. A company can be either a public company or a private company either limited by liability or limited by or without limitation on the liability of its members. Furthermore, a company can also be founded by one person. There are also other types of companies such as section 8 companies, dormant companies, subsidiaries, etc.