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2021

Type of Companies in India

type of companies in india

India has been identified as one of the fastest growing major economies in the world, its service industry being the key contributor. India is going through a phase of extraordinary economic liberation and is encouraging foreign direct investment by granting more accessibility to its massive and diverse market. For these reasons, many companies are now targeting expansion by starting their own business in India. Foreign investors can register various types of companies in India. Depending on the purpose, goals, initial investment, and the duration (short term/long term) of business, investors can decide the structure for their business.

Nowadays, entrepreneurs opt for company form of organisation and look at the scope of entering into Corporate World. Various types of companies can be formed according to the requirement of business and its activities. In this blog, we will discuss the basic types of a company in India. Let us discuss about different type of companies in India. 

Definition of Company as per the Companies Act, 2013:

The word ‘Company’ has been derived from the Latin word made from two words i.e. Com and panies. The word ‘com’ in Latin means ‘with or together’ and the word ‘panies’ in Latin means ‘bread’. Hence, a company meant an association of persons who took their meal together.

In common parlance, the meaning of company form of business can be understood as an association of persons formed for the purpose of carrying on some business or undertaking. A company is a body corporate having separate legal identity having status separate from members constituting it.

A company, as per the Indian Companies Act, 2013 is a company Incorporated under Companies Act, 2013 or under any previous company law. The Act prescribes following types of Companies in India on different basis.

As per section 2(20) of the Companies Act, 2013, the term Company means “a company incorporated under this Act or under any previous company law”.

Type of Companies in India:

Statutory Company:

  • Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament.
  • The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments.
  • This is a body corporate created by the legislature with defined powers and functions and is financially independent with a clear control over a specified area or a particular type of commercial activity.
  • It is a corporate person and has the capacity of acting in its own name. Statutory corporations therefore have the power of the government and the considerable amount of operating flexibility of private enterprises.

Registered Company:

  • Company registered under the Indian Companies Act is known as Registered Company.
  • These types of companies are governed and regulated by the provisions of the Companies Act, 2013.
  • They may be limited by shares or limited by guarantee or unlimited companies.

Company Limited by Shares:

  • In this form of Company, the capital is introduced in the form of Shares i.e. the capital of the company is divided into a small portion, known as shares.
  • The shares are considered interest of the shareholder in the company. The number of equity shares held, measures the ownership of the shareholder in the company.
  • If there requirement for capital arises in the company, the shares can be issued for subscription by shareholders.
  • In this type of company, the liability of the members is limited up to the unpaid capital on the shares subscribed.
  • Further, this form of company can be registered as private limited company, One Person Company or register as a public limited company also, based on number of members and nature.

Company Limited by Guarantee:

  • The company can be either private limited company or a public limited company also, where the capital is not divided into shares. Here, the capital to be introduced by the members, are in nature of guarantee.
  • The subscriber to the Memorandum subscribes the amount guaranteed and puts signature against the amount guaranteed.
  • Here, the percentage of the ownership is based on the amount guaranteed. Whenever the requirement of capital arises, the members introduce the capital to the company. The liability of members is limited up to the amount of guarantee provided only.
  • These companies can also issue shares, where the shareholders are also liable up to the amount unpaid on the shares as discussed above. However, the shareholding is not criteria of deciding the ownership.

Unlimited Company:

  • A company not having any limit towards the liability of its members is an unlimited company.
  • The liability extends to the whole amount of the company’s debts and liabilities.
  • The registered companies (whether limited or unlimited) may be either private or public companies.

Public Limited Company:

  • A Public Limited Company in India has a minimum of three directors, a minimum of seven shareholders, and can have a maximum of unlimited shareholders.
  • It can either be listed in a stock exchange or remain unlisted.
  • Once the company is listed as a Public Limited Company in a stock exchange, its shareholders can freely trade the company’s shares.
  • Since it is a separate legal entity, the company’s existence is not affected by retirement, death, or insolvency of its shareholders. Incorporating such types of entities can be difficult and time-consuming.

Private Limited Company:

  • A Private Limited Company in India is a privately held small business entity and considered as an independent legal entity on incorporation.
  • It has a minimum of one and a maximum of fifty shareholders.
  • Unlike Public Limited Companies, Private Limited Companies cannot publicly trade its shares.
  • It can have a minimum of two and a maximum of fifteen directors.

One Person Company:

  • A type of Private Company itself, One Person Company is commonly known as OPC.
  • OPC is significantly different from other types of companies because of number of member.
  • In OPC, there is only 1 member at any time during its existence. Here, this member must be an individual and an Indian resident.

Holding and Subsidiary Company:

  • A company which controls another company is called a Holding Company and the company so controlled is called a Subsidiary Company.
  • A company shall be deemed to control another company in the following cases:
  • If it controls the majority composition of the board of directors of another company.
  • If it 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.
  • If another company is a subsidiary of the first mentioned company’s subsidiary (i.e. subsidiary of the subsidiary).

Associate Company:

  • “Associate Company” as in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a Joint Venture Company.
  • “Significant Influence” means control of at least 20% of total share capital but less than 50% of share capital by another company, or control of business decisions under an agreement.

Small Company:

  • Small Company is a special status given to registered companies. You are not required to incorporate a new company, but it is a status it derives because of its financial and other positions.
  • A company is said to be small company, if it follows below mentioned conditions:
  • Not a Public Company
  • Paid-up share capital: Not exceeding fifty lakh rupees
  • Turnover: Not exceeding two crore rupees, as per profit and loss account for the immediately preceding financial year
  • Further, this does not apply to any holding or subsidiary company; Section 8 company; or a company governed by any special Act.
  • Small Companies enjoy certain exemptions under Companies Act, 2013 in terms of compliance.

Exemptions for Small Companies:

  • Financial statements may not include the cash flow statement.
  • The annual return shall be filed by director and company secretary or when there is no company secretary, by two directors.
  • It is sufficient if at least one meeting of the Board of Directors has been conducted in each half of a calendar year.

Joint-Venture Company:

  • A Joint Venture (JV), as the name suggests, is a new business entity created through a partnership between foreign and Indian investors, in which the partners jointly share the profits, losses, management responsibilities, and operation expenses.
  • The advantages of joint ventures are that the foreign company can utilize the well-established contact network, distribution, marketing channels, and the available financial resources of the Indian partner.
  • A JV also offers the investors to jointly manage the risks involved with the new business and limit their individual exposure by sharing the liabilities.

Domestic Company:

  • A domestic company means an Indian company or any other company which in respect of its income, liable to tax under the Income-tax Act, has made the prescribed arrangements for the declaration and payment within India, of the dividends (including dividends on preference shares) payable out of such income.
  • Thus, all Indian Company are treated as Domestic Company but all Domestic Company are not Indian Company.
  • If a Foreign Company makes prescribed arrangements for payment of dividends in India it shall be treated as Domestic Company.

Foreign Company:

Foreign company is a company incorporated outside India which:

  • Has a place of business in India whether by itself or through an agent, physically or through electronic mode.
  • Conducts any business activity in India in any other manner.

Government Company:

  • A Government company means, any company in which not less than fifty one percent of the share capital is held by the:
  • Central Government, or
  • Any State Government, or
  • Partly by the Central Government and partly by one or more State Governments.
  • It also includes a company which is a subsidiary of a Government company.

Dormant Company:

  • Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.
  • Inactive company means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.

 

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