Classification of Companies: On the Basis of Incorporation, Liability, Members, Control, Other types of Companies

A company in India is a legal entity formed under the Companies Act, 2013 that has a separate identity distinct from its members. It is an artificial person created by law, capable of owning property, entering into contracts, suing, and being sued in its own name. The liability of members is generally limited to the extent of their shareholding. Companies in India may be private, public, or one-person companies, depending on ownership and regulatory requirements. By obtaining incorporation, a company enjoys perpetual succession and a common seal, ensuring continuity despite changes in ownership or management.

Classification of Companies: On the Basis of Incorporation

• Chartered Companies

A Chartered Company is a company incorporated under a special charter granted by the monarch or sovereign authority. Such companies derive their powers, rights, and obligations from the charter itself, and not from any general company law. They were more common in England during the colonial era, such as the East India Company. In India, this form does not exist under the Companies Act, 2013, as incorporation is regulated only through statutory law. However, it is studied historically to understand the origin and evolution of corporate entities and their governance structures.

• Statutory Companies

A Statutory Company is incorporated by a special Act of Parliament or State Legislature. Its powers, objectives, and management structure are defined in that Act itself. These companies are usually created for public utility services, such as transport, insurance, finance, and infrastructure. Examples in India include Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), Food Corporation of India (FCI), etc. Such companies are governed primarily by their special Act, but provisions of the Companies Act, 2013 apply wherever not inconsistent. They enjoy special privileges but also face stricter public accountability.

• Registered Companies

A Registered Company is one that is incorporated under the Companies Act, 2013, or any earlier company law in India. These companies come into existence after registration with the Registrar of Companies (ROC) and obtaining a Certificate of Incorporation. Registered companies may be private companies, public companies, or one-person companies. They derive their powers, objectives, and internal rules from their Memorandum of Association (MOA) and Articles of Association (AOA). Registered companies enjoy benefits such as separate legal entity, limited liability, perpetual succession, and transferability of shares, making them the most common form of companies in India.

Classification of Companies: On the Basis of Liability

• Companies Limited by Shares

A Company Limited by Shares is the most common type in India. In this form, the liability of each member is restricted to the unpaid amount on the shares they hold. If the company faces losses or is wound up, members are not personally liable beyond the unpaid value of their shares. This protects personal assets of shareholders, encouraging investment. Such companies may be private or public. Example: Most joint stock companies registered under the Companies Act, 2013 are limited by shares. This form ensures financial security for members and credibility for external investors.

• Companies Limited by Guarantee

A Company Limited by Guarantee is one where members’ liability is limited to a predetermined amount they agree to contribute at the time of winding up. Members are not required to pay during normal operations but must contribute up to the guaranteed amount if the company is liquidated. Such companies are usually formed for non-profit purposes, including charities, clubs, and research associations. They focus on promoting education, arts, science, culture, or sports rather than profit-making. In India, these companies are registered under the Companies Act, 2013, and may or may not have share capital.

• Unlimited Companies

An Unlimited Company is one in which the liability of members is unlimited. This means that if the company is unable to pay its debts during winding up, members are personally liable for the entire debt, even beyond their shareholding. Their personal assets can be used to meet the company’s liabilities. Such companies may or may not have share capital. Due to the high financial risk involved, unlimited companies are very rare in India. They are governed by the Companies Act, 2013 but are not generally preferred as they do not provide limited liability protection.

Classification of Companies: On the Basis of Members

• Private Company

A Private Company is one that restricts the right to transfer its shares and limits the number of its members to 200 (excluding present and past employees). It must have a minimum of 2 members and 2 directors. A private company cannot invite the public to subscribe for its shares or debentures. It enjoys certain privileges under the Companies Act, 2013, such as exemption from issuing a prospectus and holding statutory meetings. Private companies are widely preferred by small businesses and family-owned enterprises due to greater flexibility, privacy in operations, and less regulatory compliance compared to public companies.

• Public Company

A Public Company is one that is not a private company. It requires a minimum of 7 members and 3 directors, with no upper limit on membership. Public companies can invite the public to subscribe to their shares or debentures through a prospectus and can list securities on stock exchanges. They are subject to stricter regulations and disclosures under the Companies Act, 2013, ensuring transparency and protection of investors. Examples include large corporations like Reliance Industries, Infosys, and Tata Steel. Public companies are essential for raising large-scale capital and contributing significantly to the economic development of India.

• One Person Company (OPC)

A One Person Company (OPC) is a unique form introduced by the Companies Act, 2013, allowing a single individual to incorporate a company. It requires only one member and one director, though the same person can hold both positions. OPC combines the advantages of a sole proprietorship and a private company, offering limited liability and separate legal entity status while maintaining full control with the single owner. It cannot invite public investment and has restrictions on turnover and paid-up capital. OPCs are suitable for small entrepreneurs, professionals, and startups seeking the benefits of corporate structure with limited compliance.

Classification of Companies: On the Basis of Control

• Holding Company

A Holding Company is one that has control over another company, called a subsidiary company. Control is exercised by holding more than 50% of the equity share capital or controlling the composition of the board of directors. The holding company supervises policies, management, and financial decisions of its subsidiaries. This structure allows large corporate groups to manage diverse businesses under one umbrella. In India, provisions related to holding and subsidiary companies are defined under the Companies Act, 2013. Example: Tata Sons Limited acts as the holding company for several Tata Group subsidiaries in various industries.

• Subsidiary Company

A Subsidiary Company is one that is controlled by another company, known as the holding company. The control may be in the form of the holding company owning more than half of its share capital or controlling its board of directors. Subsidiaries may operate independently but remain accountable to their holding company. This structure helps in diversification, expansion into new markets, and better risk management. Under the Companies Act, 2013, a subsidiary can also be a wholly owned subsidiary if 100% of its shares are held by the holding company. Example: Infosys BPM is a subsidiary of Infosys.

• Associate Company

An Associate Company is one in which another company has a significant influence but is not its holding or subsidiary company. According to the Companies Act, 2013, significant influence means control of at least 20% of the total voting power or participation in business decisions under an agreement. Associate companies are often formed through joint ventures or strategic alliances to achieve mutual business goals. They provide opportunities for collaboration without full ownership. Example: Maruti Suzuki India Limited was initially an associate of Suzuki Motor Corporation before Suzuki increased its stake to make it a controlling shareholder.

Classification of Companies: Other types of Companies

• Government Company

A Government Company is one in which not less than 51% of the paid-up share capital is held by the Central Government, a State Government, or jointly by both. Such companies are established to undertake commercial activities on behalf of the government while enjoying operational flexibility. They are governed by the Companies Act, 2013, but also subject to government oversight. Examples include Steel Authority of India Limited (SAIL) and Bharat Heavy Electricals Limited (BHEL). Government companies play a vital role in infrastructure, energy, defense, and other key sectors contributing to the economic development of India.

• Foreign Company

A Foreign Company is one that is incorporated outside India but has a place of business in India, either directly or through an agent, branch office, or electronic mode, and conducts business activity in India. Under Section 2(42) of the Companies Act, 2013, such companies must comply with certain provisions of Indian company law, including filing documents with the Registrar of Companies (ROC). Examples include Microsoft Corporation (India) Pvt. Ltd. and Google India Pvt. Ltd. These companies bring investment, technology, and global business practices, contributing significantly to India’s growth and international trade relations.

• Small Company

A Small Company is a private company that meets the criteria specified under Section 2(85) of the Companies Act, 2013. As per the latest amendment, a company is classified as small if its paid-up share capital does not exceed ₹4 crores and its turnover does not exceed ₹40 crores. It cannot be a public company, holding or subsidiary company, Section 8 company, or a company governed by special laws. Small companies enjoy simplified compliance requirements, lower filing fees, and lesser regulatory burden, making them suitable for startups and small entrepreneurs seeking limited liability with ease of doing business.

• Dormant Company

A Dormant Company is one that has been formed and registered under the Companies Act, 2013 but is not carrying on any significant business or operations. It may also be a company formed for a future project or to hold an asset or intellectual property. Such companies can apply for the status of a dormant company with the Registrar of Companies to avoid heavy compliance requirements. They are required to maintain minimal compliance, such as filing annual returns. This provision benefits entrepreneurs who want to keep a company name or structure ready for future business opportunities.

• Section 8 Company

A Section 8 Company is one established for charitable or non-profit objectives such as promoting commerce, art, science, education, sports, research, social welfare, religion, or environment protection. It is registered under Section 8 of the Companies Act, 2013 and enjoys several privileges, such as tax exemptions and relaxed compliance norms. Unlike other companies, its profits cannot be distributed as dividends to members but must be reinvested to further its objectives. Examples include organizations like CII (Confederation of Indian Industry). Section 8 companies are crucial for promoting social development, community welfare, and philanthropic activities in India.