Law and You > Corporate Laws > Companies Act, 2013 > Kinds of Companies
Different types of companies are private company, Public company, Joint company, holding company, subsidiary company, one person company, foreign company, government company, etc.
a) Private Company:
According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.”
According to Section 2 (68) of Company Act, 2013 “private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,—
- restricts the right to transfer its shares;
- except in case of One Person Company, limits the number of its members to two hundred:
- prohibits any invitation to the public to subscribe for any securities of the company;
These restrictions are the basic criteria that differentiates private companies from public companies.
Characteristics of Private Company:’
- Private companies can have a maximum of 200 members and minimum 2 (except for One Person Companies).
- Private companies can have a minimum paid-up capital of any amount as specified in the memorandum and articles
- Companies Act, 2013 expressly restricts transfer of shares in private companies.
- All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.
- A private company must have at least two directors, and at least one director in case of an OPC.
- A private company has a privilege over the public company as they don’t have to keep an index of its members
- The legal formalities in the formation of private limited companies are less compared to those in the formation of public limited companies.
- The Company Act, 2013 prohibits any invitation to the public to subscribe for any securities of the private company. Hence there is no such need to issue a prospectus and hence the stringent provisions of the Act related to the issue of prospectus are not applicable to private companies.
Privileges of Private Companies
The Companies Act has provided certain privileges and exemptions to Private Limited Companies that other types of companies are not generally entitled to such as:
- No need to prepare a report for annual general meetings.
- Only 2 minimum directors required.
- No need to appoint independent directors.
- They can adopt additional grounds for the disqualification of directors and vacation of their office.
- They can pay greater remuneration to their directors than compared to some other types of companies. etc.
b) Public Company:
According to Section 2(20) of the Companies Act, 2013, a “Company means a company incorporated under this Act or under any previous company law.”
As per Section 2 (71) of the Companies Act, 2013, public company is a company which (a) is not a private company, (b) has minimum capital of Rs.5 lakh or such higher paid-up capital as may be prescribed, and (c) is a private company which is a subsidiary public company.
Characteristics of Public Company:
- Public companies can have a minimum 7 members and there is no upper limit.
- Companies Act, 2013 allows transfer of shares in private companies.
- Public companies must include the words “Public Limited” or “Limited” in their names.
- A public company must have at least three directors, and if listed company one-third must be independent
- Public company has to keep an index of its members
- The legal formalities in the formation of public limited companies are more compared to those in the formation of private limited companies.
- The Company Act, 2013 allows public companies invitation to the public to subscribe for securities of the company. Hence there is need to issue a prospectus and hence they have to follow stringent provisions of the Act related to the issue of prospectus.
- There are restrictions on directorial and managerial remuneration.
- One of the advantages that public companies enjoy is the ability to raise funds through the sale of securities to the public.
- Public companies are required to file quarterly and annual financial statements and other mandatory documents.
- Public companies are vulnerable to increased scrutiny from the government, regulatory agencies, and the public.
- Minimum two third directors of public company retire by rotation.
- Accounts of public company are available for public inspection.
- They have to file returns annually
- Holding of Annual General Meeting is mandatory for public companies.
- A Public Company can borrow from various sources very easily.
- There is a possibility of hostile takeover of a company.
- Compare to private companies decision making is slow.
c) One Person Company:
Section 2(62) of Companies Act, 2013 defines an One Person Company (OPC) as a company that has only one person as a member. OPC’s benefit from the following privileges and exemptions under the Companies Act:
- OPCs don’t have to conduct annual general meetings.
- Cash flow statements need not be included in their financial statements.
- Directors could sign the annual returns too; a company secretary is not mandatorily required.
- Provisions in regard to the independent directors are not applied to OPCs.
- Directors can take home more remuneration as compared to other companies.
Characteristics of OPC:
- A natural person who is a resident of India and also a citizen of India can form a one-person company.
- A minor cannot become a member or nominee of the One Person Company.
- OPC Must have at least one director and maximum 15.
- While registering the company as OPC, the sole member of the company has to mention a nominee while registering the company.
- OPC cannot carry out non-banking financial investment activities, including investment in securities of any corporate.
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Advantages of OPC:
- Limited liability.
- A separate legal entity registered under the Companies Act.
- More credibility to the business
- Easy to get loans or funding for the business as lenders trust the registered business
- OPC provides an opportunity to those who look forward to starting their own start-ups with a structure of organized business.
- The Companies Act of 2013 exempts the OPC from certain compliance requirements.
Disadvantages of OPC:
- OPC takes more money to set up and run compared to Sole Proprietorship
- All decisions must be made and approved by the lone member.
- OPC (One Person Company) is well suited to the structure of a small firm.
- Must have a nominee to incorporate an OPC
- A person cannot have more than one OPC at a time
- The OPC is prohibited from engaging in non-banking financial investment operations.
d) Producer Company:
A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living and ensure a good status of their available support, incomes and profitability. Section 465(1) of the Companies Act, 2013 applies to it. Ss. 581A to 581ZT contain provisions related to Producer Companies.
Objectives of Formation of Producer Companies:
There are various objects (S. 581B of the Act) for which Producer Companies are formed such as:
- production, harvesting, procurement, grading, marketing, selling, export and import of primary produce of the Members or goods or services for the benefits of the members. The activities specified in this clause may be carried by the Producer Company either by itself or through other institution;
- processing activities which include preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its members;
- manufacturing, selling or supplying of machineries, equipment’s or consumables mainly to its members;
- educating on the principles of mutual assistance to its members and others;
- technical and consultancy services shall be rendered and providing training, research and development and all other activities for the promotion of the interests of its members;
- techniques of mutuality and mutual assistance shall be provided.
- welfare measures or facilities are adopted for the benefit of Members.
- Ancillary, incidental or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner;
- extending of credit facilities or any other financial services to its members for the activities specified above.
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Who can form Producer Company?
Under Section 581C of the Act, any ten or more individuals, each of them being a producer or any two or more Producer institutions, or a combination of ten or more individuals and Producer institutions, desirous of forming a Producer Company having its objects specified in section 581B and otherwise complying with the requirements of this Part and the provisions of this Act in respect of registration, may form an incorporated Company as a Producer Company under this Act.
e) Foreign Companies:
According to Section 2(42) of the Indian 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 an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner
In P. J. Johnson v. Astrofie Armadom, (1989) 3 Co. Law Journal, 5, Ker case, the Court gave scope of the phrase “place of business in India” and observed that in order to fall within the scope of this term, the company should have established ‘business like operations’ in the country for reasonable long period of time.
Under Section 380 of the Act, every foreign company must submit following documents:
Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration—
- a certified copy of the charter, statutes or memorandum and articles;
- the full address of the registered or principal office of the company;
- a list of the directors and secretary of the company containing such particulars as may be prescribed;
- the name and address or the names and addresses of one or more persons resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company;
- the full address of the office of the company in India which is deemed to be its principal place of business in India;
- particulars of opening and closing of a place of business in India on earlier occasion or occasions;
- declaration that none of the directors of the company or the authorised representative in India has ever been convicted or debarred from formation of companies and management in India or abroad; and any other information as may be prescribed.
Under Section 381 of the Act, the Foreign Companies in each calendar year are required to prepare a balance sheet and profit & loss account in such form, containing such particulars and shall also annex the documents as prescribed under Rule 4 along with the balance sheet and profit & loss account. All these documents shall be filed with Registrar of Companies along with a copy of list of all the places where business has been established in India as on the date of the balance Sheet in Under Section 382 of the Act, every Foreign Company is required to exhibit outside its every office or place of business in India, and in all business letters, bill heads and letter paper, and in all notices, and other official publications, the name of the company and the country where it is incorporated.
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f) Government Companies:
According to Section 2(45) of the Indian Companies Act, 2013, Government company means any company in which not less than fifty-one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary company of such a Government Company.
The public sector companies in India were incorporated into two main objectives: a) To achieve more equity in the distribution of wealth and income amongst the citizens of the country and b) To gain the momentum in the growth of the nation.
Characteristics of Government Companies:
- Government Companies are legally registered under the Companies Act 2013, under section 2(45).
- The provisions of the Companies Act 2013, are applicable to these type of Companies as like any other company. However, the Central Government may direct that any of the provisions of the Companies Act shall not apply to a Government company or shall apply with certain modifications.
- They are created by an executive decision of the Government, without seeking the approval of the Parliament or the State Legislature.
- Like all other companies, Government Companies too have a separate legal entity, that is to be sued and can sue in legal matters. They can also hold properties in their name.
- The main documents of a Government Companies include the Memorandum of Association and Articles of Association. These documents contain information like rules and regulations of the company related to the appointment of employees, objects of the company, etc.
- They are managed by the directors who are appointed by the government itself.
- They have its own staff; except Government officials who are sent to it on deputation. The employees are not civil servants. They regulate their own personal policy following the Articles of Associations.
- The annual reports, are prepared at the end of the financial year. This report is placed before the Parliament or the State Legislature.
- The capital of the company is to be held wholly or partially by the state government and the central government together or individually.
- Accounting and Audit Practices are done by Chartered Accountants appointed by the government.
- They are free from budgetary, accounting and audit controls, applicable to Government undertakings.
g) Holding and Subsidiary Companies:
Subsidiary Company:
According to Section 2(87) of the Indian Companies Act, 2013, subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
A Subsidiary Company finds shelter under its parent Holding Company to protect itself from unfair competition and other uncertainties that arise during the course of the regular business;
Holding Company:
A holding company is a parent company, that holds majority voting shares in another company called subsidiary company that the shareholding is arranged in a way that the holding company can control the policies of its subsidiary company and oversee its management decisions.
- Holding company holds more than 50% shares of subsidiary company;
- Holding company has the power to appoint and remove board members, directors, and other key management and personnel of the subsidiary company;
- The Holding Company has all ownership rights and duties over its subsidiaries and takes all major decisions;
- A holding company may invest in a number of subsidiaries, as a part of its investment strategy. This may also be carried out to minimise risks and for tax emoluments;
- A holding company takes charge of the subsidiary and regulates the market competition for the Subsidiary Company; and
- Under Section 129 of the Companies Act, 2013 if company has one or more subsidiaries, it must, in addition to its own financial statement, prepare a consolidated financial statement of itself and all its subsidiaries and lay it before its annual general meeting.
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