The Companies Act, 2013 specifies the types of companies that can be promoted, incorporated, and registered under the Act. The three basic types of companies incorporated under the Companies Act, 2013 are Private Company, Public Company, and One Person Company.
Classification of Companies
Companies can be broadly classified into two categories:
Let us learn more about them.
1. Classification on the Basis of Incorporation.
There are three ways in which companies may be incorporated.
1. Chartered Companies: These companies can also be called sovereign companies, which were incorporated before the Independence.
2. Statutory Companies: Statutory companies are constituted by a special Act of the Parliament or a State Legislature. The provisions mentioned in the Companies Act, 2013 do not apply to them. For example, the Reserve Bank of India, the Institute of Company Secretaries of India.
3. Registered Companies: Companies registered and incorporated under the Companies Act, 2013 or any other previous Companies Act are called registered companies.
2. Classification Based on Liability.
There are three types of companies under this category.
1. Unlimited Liability Company: Unlimited Liability Company is defined under section 2(92) of the Companies Act, 2013. In these types of companies, members are liable for the debts or losses of the company, even to the extent of their personal property.
2. Companies limited by Guaranteed: It is defined under section 2(21) of the Companies Act, 2013. In this type of company, the person who has guaranteed to pay the company’s debt is liable to pay debts only when the company is winding up and has incurred losses.
3. Companies limited by Shares: It is defined under section 2(22) of the Companies Act, 2013. In these types of companies, members are liable to pay the amount only up to the value of unpaid shares held by them. Limited by Shares = No. of Shares x Unpaid Value
Types of Companies Under the Companies Act, 2013
There are mainly three types of companies registered under the Companies Act, 2013, and we’ll study each one of them one by one.
1. Public Company.
According to section 2(71) of the Companies Act, 2013, a company means a company which:
- is not a private company.
- has a minimum paid-up share capital, as may be prescribed.
Note: If a private company becomes a subsidiary of the public company, then it will be called a public company for this Act and will remain to be a private company under its articles.
Requirement of the minimum number of directors and shareholders: A public company requires a minimum of 7 shareholders and 3 Directors.
2. Private Company.
According to section 2(68) of the Companies Act, 2013, a private company is a company that has the minimum paid-up share capital as may be prescribed, and
- Has restriction on transfer of shares.
- Invitation to the public is prohibited from subscribing to the securities of the company.
- Maximum members should be 200 in a private company.
If two or more persons jointly hold the shares of the company, then they will be treated as a single member.
People who shall not be included in the number of members are:
- People who are in employment with the company.
- People who were previously employed or working with the company.
3. One Person Company (OPC).
This company is defined under section 2(62) of the Companies Act, 2013. This Act brought the concept of One Person Company in which even a single person can constitute a company.
OPC was introduced to encourage corporatization for small businesses. JJ Irani Expert Committee recommended establishing One Person Company in 2005 with a simpler legal regime and exemptions for such a company.
Related:
1. What Is Articles of Association of a Company?
2. What Is Memorandum of Association of a Company?
Other Forms of Companies
Three other forms of companies that you should know about are:
Here’s more about them.
1. Nidhi Company.
This type of company is defined under section 8 of the Companies Act, 2013. The primary objective of Nidhi Companies is accepting deposits and lending money to its members and borrowers without security, and members of this company are only individuals.
These companies work on the principle of mutual benefit, and this principle is incorporated to inculcate the habit of savings among its members.
Section 406, read with section 469, specifies that the Nidhi rules will apply to:
- Section 620A (I) of the Companies Act, 2013 – Nidhi or Mutual Benefit Society.
- Companies that are functioning on the lines of Nidhi Company.
- Section 406 of the Companies Act, 2013 – Companies which are incorporated as Nidhi Companies.
2. Producer Company.
Producer company, as defined by Section 581(a) of the Companies Act, 2013, is a legal entity with the common goals or activities as listed in Section 581(b) of the same Act.
Section 581(b) lays down certain objectives for which the producer company is formed, such as production, harvesting, procurement, grading, pooling, processing, manufacturing, sale, supply of machinery or equipment, education, technical services, consultancy, training, industry, etc. or any other company which provides financial aid to the companies mentioned above.
3. Foreign Company.
Section 2(42) of the Companies Act, 2013 defines a foreign company as a company or body corporate incorporated outside India but has a place of business in India.
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