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A corporation is a legal organisation founded by a group of people to cooperate in and operate a commercial or industrial business. Depending on the country’s corporate law, a company can be constituted in a variety of ways for tax and financial liability purposes. There exist companies limited by shares, companies limited by guarantee, and unlimited companies. These also decide a company’s ownership structure. Moreover, companies can be divided into private and public firms. Ownership arrangements, legislation, and financial reporting standards are unique for each type of company.
When we view business, we take it as a form of transaction needed to get the work done. Nevertheless, a company is not just a form of transaction – it is a separate classified entity. Furthermore, it has a group of people who invest in it and use its goods and services. Therefore, it functions as a much larger entity than a simple transaction or contract.
Classification of Companies
The growth of companies has resulted in the emergence of several other new business models. Companies are classified according to their obligations, members, and control. Let us take a closer look at the classification of companies:
Companies on the Basis of Liabilities
Companies Limited by Shares: In companies limited by shares, sometimes, shareholders of some firms may not always pay the full value of their shares at once. The responsibilities of members in these firms are limited to the number of unpaid dividends on their shares.
Companies Limited by Guarantee: In certain businesses, the memorandum of association specifies monetary amounts that some members agree to pay. They will only be obliged to pay the guaranteed sum if the company is liquidated. They cannot be forced to pay additional money by the company or its creditors.
Unlimited Companies: The liabilities of members of unlimited companies have zero limits. As a result, the corporation can use all of the shareholders’ personal assets to pay off its debts while it is winding up. Their responsibilities will include the entire company’s debt.
Companies on the Basis of Members
One-Person Companies (OPCs): As the name suggests, the shareholder in these businesses is only one person. Since OPCs are legal entities apart from their sole members, they are distinct from sole proprietorships. Unlike other companies, a one-person company does not need a minimum share capital.
Private Companies: The articles of association of private corporations limit the transferability of shares for free. Private corporations must consist of a minimum of 2 to a maximum of 200 members. These members consist of both current and previous employees who even own shares.
Public Companies: Unlike private organisations, public companies allow their members to transfer shares to others for free. Secondly, they must consist of a minimum of 7 members, with no limit on the max number of members they can have.
Companies on the Basis of Control
Holding and Subsidiary Companies: There are cases where a company’s shares may be held entirely or partially by another company. The company that owns these shares is now known as the holding or parent company. Similarly, a subsidiary is a company whose shares are owned by the parent company.
Associate Companies: Associate companies are those types of companies where other companies have a significant influence. This ” significant influence ” entails owning at least 20% of the associate company’s shares.
Other Types of Companies
Government Companies: Government companies can be referred to as companies with more than 50% of share capital held by the central government, by state governments, or jointly owned by both kinds of governments.
Foreign Companies: Foreign companies can be referred to as companies present outside India. These companies also conduct business in India, either on their own or by collaborating with other companies.
Charitable Companies (Section 8): Companies with charitable goals, often referred to as NPOs, are termed charitable companies. These companies are also known as Section 8 companies as they are registered under Section 8 of the Companies Act, 2013. The primary goal of charitable companies is to promote religion, arts, culture, science, education, commerce, and many more. They do not pay money to their members because they don’t make any.
Dormant Companies: These companies are usually set up to work on future projects. They do not have large accounting transactions and are not required to comply with all the regulations that apply to regular companies.
Conclusion
A company is a group of people who have come together to carry out particular legal transactions. In the eyes of the law, a company is a legal person with the same rights and responsibilities as ordinary people. A company has several characteristics, including perpetual succession until it is wound up, the ability to sue and be sued, and the right to hold property in its own name. Furthermore, one can form other companies based on the promoter’s preferences. A company can be limited by shares, limited by guarantee, or be an unlimited company. A company limited by shares might also be either a private or public company. The Act created a new type of company known as a limited liability company (LLC).
