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A company can be defined based on different attributes. Many characteristics outline the functioning and formation of different types of companies. The Company Act of 2013 is a major cut-break for the corporate laws and the working of many companies in India. It revolutionized the private and public firms and proposed new laws and provisions. Based on the ownership category and share of liabilities, there are six different types of companies. Among them, the most popular types are public and private companies. A rough outline of how many types of companies are in India are listed below.
Different Types of Companies
A company is an organization or collection of individuals formed to carry out a business. It is an artificial person created under the law by people who share a collective objective. A company is a separate legal entity with perpetual succession and a common seal. Based on the number of members and liability of its members, there are different companies. Each type of company has its specifications and is classified under the Companies Act, 2013. They are briefly described below.
Types of Companies based on Liabilities
Based on liability, companies can be classified into three:
Companies limited by share – These are the most popular form of companies. In such companies, the liability of a member or members is based on the shares kept unpaid. The member does not owe any liability to the company if they have paid the face value of shares. The liability can be imposed even during the wind-up process of the company. The liability is limited to the shares unpaid by them.
Companies limited by guarantee – The liability is limited to the undertakings held by the members of these companies. The shareholders pledge to pay a fixed amount during liquidation. The shareholders need to pay the unpaid amount on their shares added with the amount payable under the guarantee. The members agree upon the MOA, Memorandum of Association of the company.
Companies having unlimited liability – The shareholder’s liability is unlimited in such companies. The unlimited liability company is liable for the interests of the shareholders in the company, for any face value the company owes them.
Types of Companies based on the number of members
Based on the number of members, there are three types of companies.
Private Companies – According to section 2(68) of the Company act of 2013, these companies need a minimum of 2 members and a maximum of 200 members. Such companies are not listed on the stock exchange, and the shares are held privately with its members.
Other Features
According to the Articles of Association(AOA), the shares are not freely transferable, and restrictions are imposed.
If allowed, this can result in an acquisition of such companies by huge Multinational corporations.
A private company requires at least 2 directors, and no index is maintained on the members.
These companies never accept deposits from public firms, so a prospectus is non-essential and cannot issue warrants.
These companies have ‘private limited’ added to their names.
Public Companies – According to section 2(71) of the company act, a public company is, in simpler terms, a company that is not private. The shares are traded openly and are listed in the stock market. Such companies generally have 3 board directors, and the minimum number of members required is seven.
Other Features
A company requires a commencement certificate to start its work if it’s public.
The maximum number of members is unlimited, and the organization can frame its Articles of Association.
The names of these types of companies end with ‘public limited’.
A prospectus is also required and can issue warrants.
The shares are transferable and have no restrictions on transfer securities.
They can invite other public companies to subscribe to their shares.
A private company that comes under a public company is also considered a public company.
One person Companies – These companies have only one person as their shareholder. It was first recognized after the revolutionary Company Acts of 2013. One person generally holds most of the share, and other members are registered to meet the requirements.
Other Features
The director and shareholder can be the same person.
A manager controls the run and operates the functioning of such companies.
The capital investment in the company determines the liability of a shareholder.
It is exempted from various company laws and has no minimum share capital.
Only an Indian citizen and a resident of India can incorporate an OPC.
Conclusion
In India, a major chunk of Companies remains private. HDFC Bank Asian Paints are examples of Public companies in India. The private sectors require initial Public Offers to participate in the stock exchange. The size of the business and the market it targets are the major factors one should look out for before starting a company. India can become one of the largest global economies in the coming years. Thus, a wise setup of companies can harness great results.
