Law and You > Corporate Laws > Companies Act, 2013 > Classification of Companies
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. In this article, we shall discuss the classification of companies on the basis of various factors.
Classification of Companies:
On the basis of incorporation:
- Chartered Company: If a company is incorporated under a special charter granted by the monarch, it is called a Chartered Company. This form of organisation does not exist in India, as there is no monarchy. Bank of England, East India Company, British Broadcasting Corporation (BBC), etc. are some examples of chartered companies.
- Statutory Company: A company which is created by a Special Act of the legislature is called statutory company, and it is governed by the provisions of such an Act. These companies are designed to run some business of national significance and mostly are invested with obligatory powers. State Bank of India, The Reserve Bank of India, LIC etc. are some examples of statutory companies.
- Registered Company: A company brought into existence by registration with Registrar of Companies under the Companies Act of 1956/2013 is called a registered company. They are the companies incorporated under the Companies Act and the registrar of companies has granted a certificate of incorporation to them. An incorporated company is another name of the registered companies, e.g., Reliance Industries Limited, Tata Consultancy Services Limited, etc.
On the Basis of Liability of Members:
- Company Limited by Shares: In case of the company limited by shares the liability of the members is limited to the nominal value of the shares held by them. According to section 2(22) of companies act 2013 ‘company limited by shares ‘means a company having liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
- Company Limited by Guarantee: In this company the liability of the members is limited to such amount as the members may decide to contribute to his assets of the company in the event of its being wound up, e.g., clubs, societies, trade associations etc. Section 2(21) of companies Act 2013 ‘company limited by guarantee ‘means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to hate assets of the company in the event of its being wound up.
- Unlimited Liability: in this case the members are liable to an unlimited extent in the event of winding up of the company. But this type of the company has become rare. Unlimited companies are found in the UK, Ireland, Hongkong, Pakistan, etc.
On the basis of Number of Members:
- Public Company: the company which can invite the public to subscribe to its shares is called a public company. Under the Companies Act, a public limited company should have three directors and at least seven members and file a statement in lieu of prospectus or issue a prospectus with the registrar before allotment of shares.
- Private company: Company which requires minimum number of 2 persons for registration and limits the number of members to 200 and prohibits an invitation to the public to subscribe it shares and debentures is called a private company.
- One Person Company (OPC): This company has only one member as their sole shareholder. They are separate from sole proprietorships because OPCs are legal entities distinct from their sole members. Unlike other companies, OPCs don’t need to have any minimum share capital.
On the Basis of Ownership:
- Government company: A company in which not less than 51% of the share capital is held by the central government and/or by any state government or governments is called a government company. It also includes a company which is subsidiary of a government company, e.g. BHEL, BEL, Indian Telephone Industries, Hindustan Aeronautics Limited According to Sec 2(45), Government company means any company in which not less than 51% of the paid up share capital held by the central government or by any state government or governments, or partly by central government and partly by one or more state governments and includes a company which is subsidiary company of such a government company.
- Non-Government Company: it is a company whose capital is subscribed by promoters and investing publics.
On the Basis of Nationality:
- Domestic company: It is the company which is incorporated in India.
- Foreign company: A foreign company is that company which is incorporated in a foreign country but which has established a place of business in India. Although foreign company are not registered in India, some of the provisions of the Companies Act are applicable to them. According to Sec 2(42) of Companies act 2013, Foreign company means any company or body corporate incorporated outside India which – a) has a place of business in India whether by itself or through by agent, physically or through electronic mode; and b) conducts any business activity in India in any other manner.
On the Basis of Control:
- Holding Company: As per section (4) of Companies Act 1956 a Holding company is a company which controls a subsidiary company. Holding company is a company, (a) Which holds more than 50% of nominal value of share capital of another company. (b) Which controls the composition of board of directors of another company.
- Subsidiary Company: As per section (4) of Companies Act 1956 Subsidiary company which is controlled by a holding company. (a) Company whose 50% of nominal value of equity share capital is held by other company. (b) Other company controls the composition of board of directors.
- Associate Companies: Associate companies are those in which other companies have significant influence. This “significant influence” amounts to ownership of at least 20% shares of the associate company. The other company’s control can exist in terms of the associate company’s business decisions under an agreement. Associate companies can also exist under joint venture agreements.
Company Not for Profit:
There are mainly 3 types of such companies in India involved in charitable activities-
Conclusion:
The classifications of Companies is done on the basis of various factors of independence, liability, financial conduct, number of members etc. These classifications are not to be observed in isolation as the Company may have two or more characteristic features of the companies mentioned above and form a very unique kind for itself.