A company is a natural legal entity formed by an association and a group of people who work to engage in and operate a commercial or industrial business operation. It could be a commercial or industrial business. Because different types of firms are taxed differently, their taxation determines their nature.
The business line of a company is determined by its form, which can range from a partnership to a sole proprietorship to a corporation. Companies can be public or private; the former sells stock to investors on a stock exchange, while the latter is privately held and unregulated.
A firm is often set up to make a profit from its operations. Companies play a vital role in the health of an economy since they employ people and attract disposable income to help the economy thrive.
Types Of Companies & Their Definitions | PDF
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Types Of Companies & Their Definitions | Short Notes
Companies are differentiated based on control, ownership, the number of members, liability, formation, control, location, investment, purpose, etc.
All types of companies can be bifurcated into 4 main heads as mentioned below:
| Factors | Examples |
| Number of Members | Public Limited Company Private Limited Company One Person Company |
| Incorporation | Royal Chartered/Royal Companies Unregistered Companies Registered Companies |
| Liability | Unlimited Company Companies Limited by Share Companies Limited by Guarantee |
| Others | Limited Liability Company (LLC) Foreign Company Charitable Company Government Company Holding Company Associate Company Subsidiary Company Listed and Unlisted Company Dormant Company Nidhi Company |
Let us look at the definitions/features that distinguish these types of companies from each other-
Types Of Company Based On Number Of Members:
Public Limited Company
A public business must have at least seven members to be formed. There is no limit to the number of members that a public business can have. In fact, public firms release prospectuses to entice consumers to invest in their stock. Members of a public business, on the other hand, are only liable for their shares. Public companies’ shares can be bought and sold in the stock market without any restrictions.
Private Limited Company
A private corporation allows its stockholders to transfer their ownership. In this situation, the company limits its membership to 50 people and does not issue any invitations to the general public to subscribe to its shares. Private corporations have limited liability and some restrictions on their shareholders’ ownership. To start a private corporation that does not include its employees or stockholders, it must have a minimum of two members and a maximum of fifty members. It is usually a firm that is founded with the goal of having all of the benefits of a corporation while limiting liability and keeping control of the business in the hands of a small group of people. A single person can have complete authority over the entire organisation in a private company.
One Person Company
A single member can hold a company’s share capital, and a “one-person firm” is exactly what it sounds like. This can happen only in either a private corporation.
Types Of Company Based On Incorporation:
Royal Chartered/Company
Companies formed under a royal charter (or similar government instrument) for the purposes of trade, exploration, investment, and colonisation. Eg: East India Company
Unregistered Company
An unregistered company is one that is not registered by the country’s Companies Act, and as a result, the law does not apply. Unregistered businesses can take several forms, including sole proprietorships and partnerships.
Registered Company
Registered or incorporated companies are those that are registered under the country’s Companies Act. However, there is a distinction to be made between registered and incorporated businesses.
Incorporating a corporation is the process of creating a new corporate structure that becomes a legally recognised person or entity. The establishment of the firm is the next step in the incorporation process. It refers to the process of preparing documents and complying with legal criteria to form a corporation lawfully. After that, the firm is submitted for registration under the country’s Companies Act.
Types Of Company Based On Liability:
Unlimited Company
In the case of a partnership firm, an unlimited company is one in which the stockholders’ responsibility is infinite. Such businesses only exist in books and aren’t known to exist in the real world. Shareholders of such a corporation are obligated to contribute whatever amount is required to pay the firm’s existing debts during its liquidation to cover the company’s insufficient funds to pay its liabilities. On the other hand, members or shareholders have no direct liability to the company’s creditors or security holders.
Company Limited By Shares
A corporation limited by shares is a registered company whose members’ liability is restricted by its memorandum of association to the sum owed on the shares they own if any. A shareholder cannot be forced to pay more than the amount of unpaid shares on his account. If nothing remains to be paid on the shares purchased by them, they cannot use the shareholder’s assets to satisfy the company’s liabilities.
Company Limited By Guarantee
In such companies, each member has agreed to contribute a set sum toward the company’s start-up costs in the event that it needs to be liquidated. This sum is referred to as a guarantee. There is no obligation to the members of such a corporation other than the value of the shares and the guarantee. Charities, community projects, clubs, groups, and other organisations are examples of such businesses. The majority of these businesses are non-profits, and they are typically regarded as private firms with limited liability for their members. A guarantee company can replace its share capital with guarantors prepared to pay the guarantee sum in the event of the firm’s collapse.
Other Types Of Companies
Limited Liability Company (LLC)
Limited liability companies (LLCs) are hybrid businesses that combine the advantages of a corporation with those of a partnership or a single proprietorship. Liability is limited among members or partners under the Limited Liability Company Act, and no one is liable for the actions or omissions of another.
Foreign Company
Foreigners own a foreign corporation. When foreign participation in a firm’s shareholding exceeds 50%, it is classified as a foreign corporation. It is the most accessible route for businesses registered outside of India to set up shop in India, and such enterprises are registered as foreign company’s Indian subsidiaries in India.
Charitable Company
Certain businesses have charitable goals as part of their mission. Because they are registered under Section 8 of the Companies Act of 2013, they are known as Section 8 companies.
The goals of charitable organisations are to promote the arts, science, culture, religion, education, sports, trade, and commerce, among other things. They don’t pay dividends to their members because they don’t make any money.
Government Company
A government corporation in which the Central Government, or any State Government or Government, owns at least 51% of the paid-up share capital, or partly by the Central Government and partly by one or more State Governments.
A subsidiary of a government-owned corporation is also considered a government-owned corporation.
Holding Company
The Holding Company is the firm that has control over another entity. A company is considered to be under the control of another if that other controls the composition of its Board of Directors/ if that other company owns more than half of the nominal value of its equity share capital/ if that other company is a subsidiary of a third company, which is itself a subsidiary of the controlling company.
Associate Company
A business valuation firm in which one company has a major voting stake of another company is known as an associate company. The voting stake normally runs from 20% to 50%; if it exceeds 50%, it is considered a subsidiary corporation. If the percentage is less than 50%, the owner is not required to consolidate the financial statements of the associate company. If it is greater than 50%, the financial statement must be consolidated, with the associate treating the balance sheet as an asset.
Subsidiary Company
A subsidiary company, sometimes known as a holding company or a parent company, is a corporation that is owned and controlled by another company. Holding companies exist when a parent firm has control over the activities of a subsidiary company. Some features of subsidiary are –
Another firm owns and controls it; when a holding company or parent business owns 50% of the voting stock of a subsidiary company, the subsidiary company’s operations are under the holding company’s control.
The subsidiary firm structure is known as a wholly-owned subsidiary if the parent company owns 100 percent of the voting shares.
Listed and Unlisted Company
A listed firm or quoted company is one whose stock is listed on one or more stock exchanges for public trading.
Unlisted company or quoted company is a corporation whose stock is not listed on any stock exchange(s) for public trade.
Dormant Company
Dormant company has been registered with Companies House but does not carry on any business or receive any type of income
After a company is registered, it does not immediately begin trading and earning money. In that instance, the firm must notify the appropriate body (such as Companies House or HM Revenue and Customs in the United Kingdom) of the grounds for its “Dormant” status.
Nidhi Company
Permanent Funds, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company are examples of Nidhi companies that borrow and lend money between their members.
Individual members are the only ones who can use it. A Nidhi business cannot accept a firm, group, or company as a member. These are India’s non-banking finance organisations, as defined by section 406 of the Indian Companies Act, 2013.
Frequently Asked Questions:
The companies that can be registered in India are Private Limited Company, Public Limited Company, Limited Liability Company, Unlimited Liability Company and Non-Profit Organisations.
Under Section 8 of the Companies Act, 2013, a non-profit organisation in India can be registered as a Trust or a Society with the Registrar of Societies as a private limited non-profit corporation.
Limited-liability corporation provides limited legal protection to its stakeholders while imposing ownership limits. These limitations are spelt forth in the company’s bylaws or regulations (legally known as Articles of Association) and are intended to deter hostile takeover attempts.
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