In India, companies are classified into various types based on several parameters. The companies can be classified based on their ownership, listing status, and members’ liability.
The term “company” is not merely a legal definition but signifies a group of people who share common goals, especially profit-making objectives. Indian law recognizes two primary organizational types for such groups: partnership and company. While the Partnership Act of 1932 and the Limited Liability Partnership Act of 2008 govern partnership law in India, companies have their own separate laws.
A company is a separate legal entity from its owners, with perpetual succession and a common seal. It can sue and be sued in its own name. Understanding different types of company and how these companies are operated in India is crucial for every budding entrepreneur.
The different types of Indian businesses will be thoroughly examined in this article, along with the different parameters used to classify them.
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Types of Company in India under the Companies Act 2013
The Companies Act, 2013 in India allows business owners to register a variety of companies to conduct their operations and give their companies a legal framework. Following are the different company types:
Types of Company Based on Size
Private Limited Company
A private limited company is a type of company that has a maximum of 200 members and owned by a small group of individuals. A private limited company enjoys limited liability and has fewer regulations as compared to a public limited company. The company required a minimum of 2 and a maximum of 15 directors. According to business needs, this type of company can convert to a public company or vice versa. Further, this type of company has two types
Small Company
A small company is a type of company which has a paid capital of up to 50 lakh INR but no more than 10 Crores, also a turnover upto 2 Crore but no more than 100 crores.
One Person Company (OPC)
A one-person company is a type of company that has only one member. OPC was first introduced by the Companies Act of 2013. An OPC can only be incorporated by a resident.
Public Limited Company
A public limited company is a type of company that offers shares to the public. There is no upper cap on the number of shareholders, but it must have a minimum of 7 members for incorporation. A public limited company requires at least 2 directors and can have a maximum of 15 directors.
A public limited corporation can raise money from the general public through the stock market, in contrast to a private limited firm. Public limited firms are required by law to report their accurate financial position so that investors may make informed decisions about purchasing their shares in order to ensure transparency and accountability.
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Types of Company Based on Control
Holding Company
A holding company owns a majority of the voting powers of another company (referred as a subsidiary). The holding company, as a parent company, exercise control over the assets, policies, and managerial choices made by the subsidiary. However, the holding company, stays out of the subsidiary’s day-to-day operations. Instead, it helps its subsidiary companies grow and prosper by offering them financial and strategic support.
Subsidiary Company
A subsidiary company as mentioned above is controlled by another company (referred as a holding company). If 100% voting share is held by the parent company then the company is called a wholly-owned subsidiary.
Associate Company
An Associate company is a company in which non-controlling stake is owned by a parent company. This share is a minority stake. It is also called as Joint Venture.
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Types of Companies Based on The Liability of The Members
Company Limited By Shares
It is a type of company where the liability of its members is limited to the unpaid amount on shares they hold. Shareholders can’t be asked to pay more than what they owe on their shares, and their personal assets are protected in case of financial difficulties. This type of company is often used to raise capital by selling shares to investors while limiting their potential liability.
Company Limited By Guarantee
A company limited by guarantee is one in which the members’ liability is constrained by the memorandum to the amount that each member may agree to contribute to the company’s assets in the case of its dissolution. It is also known as a “Guarantee Company”
Unlimited Company
In case of an Unlimited company, the liability of its members is not limited. Small firms that don’t need a lot of capital investment and desire complete control over their operations typically use this sort of company type.
The absence of liability protection, however, poses a serious risk to the members. Unlimited companies don’t have a separate legal existence from their members, in contrast to limited companies. The members’ personal assets could potentially be at stake because they are now individually liable for the company’s debts and commitments.
Types of Company Based on Listing
Listed Company
The companies that are listed on stock exchange within India or outside india and whose shares are traded freely are called Listed companies. These type of companies subscribes to the Securities Exchange Board of India’s (SEBI) rules and regulations.
Unlisted Company
A corporation should distribute a prospectus to the general public for subscribing to its debentures or shares if it wants to list its shares on stock exchanges. An Initial Public Offering (IPO) is one way for a firm to list its shares and if. a company is already listed, it can make a Further Public Offer (FPO).
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Other Types of Company in India
Government Company
It is a company owned by the government. The central government or state government or both have more than 51% of ownership.
Nidhi Company
Nidihi company is established with a sole purpose of lending money between its members. It is a type of NBFC for which Individuals can only become its members, a whole group or company can’t become its member.
Section 8 Company
A Section 8 company is established with a charitable purpose of promotion of different fields like religion, Arts, Science, Eductaion, Social welfare etc. It is a a Non profit organisation.
Foreign Company
A foreign company is one that was founded outside of India yet maintains a presence there.
Conclusion
India has a dynamic business landscape, with everything from a SME to significant multinational corporation exsisting under same roof. Anyone who is interested in starting a firm and want to enter the Indian market must have an understanding of the different types of companies in India. Each kind, from one person company to public limited companies, has specific benefits and drawbacks.
To make well-informed decisions, extensive research and professional advice are required. For those ready to experiment and create, there are countless opportunities thanks to India’s fast expanding economy and hospitable business environment. One may unleash the potential for success and growth in this dynamic market by being familiar with the subtleties of the Indian business environment.
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FAQs
Can a salaried person start LLP?
Yes, a salaried individual is eligible to join an LLP as a partner.
Can LLP apply for startup?
The ideal vehicle for a startup or small to medium firm is an LLP. LLP is a different type of corporate business structure that combines a partnership’s flexibility with a company’s restricted liability.
Is there a founder in an LLP?
In India, LLP can only be formed by 2 or more partners. You can’t register as a LLP if you are the only founder of your company.
What are the 5 types of company?
In India the following are the type of companies:
- Public Limited Company
- Private Limited Company
- Companies Limited By Shares
- Companies Limited By Guarantee
- Unlimited Company
- Foreign Company
- Government Company
- Holding Company
- Subsidiary Company
- Associate Company
- Listed Company
- Unlisted Company
- Nidhi Company
