Notes

Types Of Companies Under Provisions Of Companies Act, 2013

Types Of Companies – Because of the changing pattern of trade and commerce in today’s world, there have occured significant changes in the means of production. The markets for the goods are not localised any more-they have become national or even international. The result of expanding markets called for production on a much bigger scale, which required tremendous investments in capital that was beyond the resource of a few individuals. This gave birth to the concept of ‘companies’, and different types of companies came to be formed. Many types of companies are engaged in commerce and industry today, which are listed hereunder:

Types Of Companies

1On the Basis of Incorporation(i) Chartered Companies
(ii) Statutory Companies
(iii) Registered Companies
2On the Basis of Liability (i) Limited Liability Companies
(ii) Unlimited Liability Companies
3On the Basis of Transferabiliy of Shares (i) Private Companies
(ii) Public Companies
4On the Basis of Ownership (i) Government Companies
(ii) Holding Companies
(iii) Subsidiary Companies
5On the Basis of Nationality (i) Inland Companies
(ii) Foreign Companies
6Other Companies (i) Multinational Companies (MNCs)
(ii) Defunct Company
(iii) Unregistered Companies or Illegal Associations
(iv) Investment Companies
(v) Finance Companies or Financial Institutions
(vi) FERA Companies
(vii) Companies with Charitable Objecs not for Profit.
(viii) One Person Company

Types of companies on the Basis of Incorporation 

(1) Chartered Companies: This is the earliest form of incorporation of companies. Such companies were formed at the instance of some select authorities of the state with the purpose of conducting the affairs of the state, like looking after the administration of some region or augmenting the military power of the state. These companies were formed by a royal charter, i.e., at the express orders of the King or Queen, and were also called chartered companies. Important examples of such companies are East India Company (incorporated in 1600 AD) and Bank of England (incorporated in 1694 AD). The members of chartered companies were not liable for any debt of the company, and the company enjoyed unlimited rights and had a vast field of activity. Such companies are not prevalent in India today.

(2) Statutory Companies: This type of companies are incorporated by an act of Parliament or the State Legislature. Each such company is incorporated by a separate Act. Such companies are called statutory companies. Examples of such companies are: Reserve Bank of India. State Bank of India, Industrial Finance Corporation, Life Insurance Corporation, etc. The word ‘Limited’ is not used as a part of the name of such companies even though their liability is limited. 

(3) Registered Companies: Such incorporation of companies is quite common. Companies incorporated under the Indian Companies Act, 2013 or any earlier Act fall under this category. These are called registered companies. Some companies, even though incorporated under the Companies Act, are also governed for most operative matters by the provisions of their special acts-e.g., Banking Companies Act, 1949 or Insurance Act, 1938. The rights and liabilities of the members are governed by the provisions of the Companies Act or the special Acts under which they are incorporated. These companies can be private as well as public.

Types of companies on the Basis of Liability

(1) Limited Liability Companies: The liability of these companies is limited. It can be limited by the number and value of shares or limited by guarantee “as the members may undertake to contribute to the assets of the company in the event of its being wound up”. It is mandatory for such companies to suffix the word ‘Limited’ at the end of their names.

  • (i) Companies Limited by Shares: The liability of the members of such a company is limited by the face value of the shares held by them. If a member has paid the total value of the shares held by him, he cannot be asked to pay any more amount in case the company suffers a loss. Such companies are said to be limited by shares because the liability of each shareholder is limited to the amount that is unpaid for the shares held by him. For example, if a shareholder has paid up 80 on a 100 share, and 20 are unpaid, his liability is limited to the unpaid amount of 20. Such companies are quite common in India.
  • (ii) Companies Limited by Guarantee: In this type of companies, the liability of each member is limited to such amount as the member may undertake to contribute to the assets of the company in the event of its being wound up. It is recorded in the memorandum of association of the company at the time of its incorporation that its members undertake upon themselves, in case the company is wound up during the tenure of their membership or within a period of one year after they cease to be its members, and its assets are not adequate to clear its liabilities, the pre-defined liability to contribute to the payment of the company’s debts. Such companies may or may not be share-capital companies. If it is a share-capital company, its members are required to pay up the unpaid value of the shares held by them plus the amount which they have uaranteed to pay in the case of the company being wound up. Generally, companies without share-capital are non-trading companies which are formed with the object of promoting arts and crafts, science, culture or sports, etc.

(2) Unlimited Liability Companies: A company with unlimited liability is one wherein the liability of the members is not limited. The members of such a company are personally liable for the debts of the company. In other words, the liability of the members of an unlimited liability company is not limited to their share in the company-it extends beyond that and encompasses the personal assets of its members. The liability of the members is valid for a period of one year after the company is wound up or any member disassociates from the company. There is provision for the formation of such company in the Company Law, but a company with limited liability is more often the rule because the liability of is members is limited to the shares they hold in the company. Unlimited liability companies are, therefore, not very popular.

Types of companies on the Basis of Transferability of Shares

(1) Private Companies: Section 2 (68) of the Companies Act, 2013 defines a ‘private company’ as a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed and by its articles:

(i) restricts the right of its members to transfer shares (if it has any).

(ii) except in case of one person company limits. The number of its members to two hundred (200) which does not include:

  • (a) members who are the employees and members of the company.
  • (b) members who, while they were employees of the company, were also its members, and continue to be its members after leaving its employment.
  • Where two or more persons hold one or more shares in a company jointly. They shall for the purposes of this clause be treated as a single member,

(iii) Prohibits any invitation to the public to subscribe for any securities of the company. The minimum number of members in a private company is two and the maximum is fifty. It is mandatory for such company to use the word ‘Private’at the end of its name.

(2) Public Companies: According to Section 2(71) of the Companies Act, 2013 a ‘public company means:

(i) A company which is not a private company.

(ii)has a minimum paid up capital of five lakh rupees or such higher paid up capital as may be prescribed.

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Types of companies on the Basis of Ownership

(1) Government Companies: According to Section 2(45) of The Company Act, 2013, a Government Company means “any company in which not less than 51 per cent of the paid-up share capital is held by the Central Government, or by any State Government Government and includes a company which is a subsidiary of a Government Company.

(2) Holding Company: According to Section 2(46) of the Companies Act, 2013, “A company shall be deemed to be the holding company of another if, but only if, that other company is its subsidiary” This definition does not specifically clarify what is a holding company-it is clarified by the description of a subsidiary company. It, therefore, becomes important to know what is a subsidiary company.

(3) Subsidiary Company: According to Section 2(46) of the Companies Act, 2013, “A company shall be deemed to be a subsidiary of another if, but only if:

  • (i) that other (company) controls the composition of its Board of Directors; or
  • (ii) that other holds more than fifty per cent of the nominal value of its equity share capital or more than fifty per cent of the total voting power of the company; or
  • (iii) The company is a subsidiary of another company which is itself a subsidiary of some other company.

Types of companies on the Basis of Nationality

(1) Inland Companies: An inland company is one that is incorporated in India under the Companies Act and is operating under the provisions of the Act. But some inland companies though incorporated under the Companies Act, are governed by a separate Act for control and management-like banking, insurance, charitable companies, etc

(2) Foreign Companies: According to Section 2 (42) of Companies Act, 2013, foreign company means any company or body corporate incorporated outside India which:

(i) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(ii) conducts any business activity in India in any other manner. Foreign companies are of two classes, namely:

  • (a) companies incorporated outside India which established a place of business in India; and
  • (b) companies incorporated outside India, which had established a place of business in India before that date and continue to have an established place of business India.

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