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Types of Company

Updated on :  

08 min read.

The Companies Act, 2013 differentiates companies based on the number of members. The Micro, Small and Medium Enterprises (MSME) Act classifies companies into micro, small and medium companies to grant them MSME benefits. Companies can also be classified based on the liability of their members, company ownership and listing status. The various types of companies based on different parameters are covered below.

Types of Company Under Companies Act, 2013

Entrepreneurs can register different types of companies under the Companies Act, 2013 (‘Act’) in India to conduct their business and provide a legal structure for the business. The different types of companies are as follows:

One Person Company

The Act introduced the concept of a One Person Company (OPC). As per the Act, an OPC is a company that has only one member. The member can also be the director of the company. Though the OPC should have only one member, it can have a maximum of fifteen directors.

Private Limited Company

A private limited company is a company where there cannot be more than 200 members. A minimum of two members are required to establish a private limited company. The members cannot transfer their share, and it is suitable for businesses that prefer to register as private entities. There needs to be a minimum of two directors, and there can be a maximum of 15 directors in a private limited company.

Public Limited Company

A public limited company means a company where the general public can hold the company shares. There is no maximum shareholders limit for a public limited company, but there needs to be a minimum of seven members to establish a public company. The company needs to have two directors and can have a maximum of fifteen directors.

Section 8 Company (NGO)

An association of persons or individuals can register a company under section 8 of the Act for charitable purposes. These companies are established to promote commerce, science, art, education, sports, research, religion, social welfare, charity, the protection of the environment, or such other objects. The company should apply its profits and other incomes to promote its activities. Such companies intend to prohibit any dividend payments to their members. 

Types of Companies Based on Size

The MSME Act classifies companies based on their size to give benefits provided by the government for MSMEs. The differentiation of companies based on size to obtain MSME benefits is as follows:

Micro Companies

A micro company is a company whose investment in plant and machinery does not exceed Rs.1 crore, and the annual turnover does not exceed Rs.5 crore.

Small Companies

A small company is a company whose investment in plant and machinery does not exceed Rs.10 crore, and the annual turnover does not exceed Rs.50 crore.

However, the Companies Act, 2013, also provides many benefits to small companies. A company with a paid-up share capital of below Rs.2 crore and an annual turnover of below Rs.20 crore is considered a small company under the Companies Act.

Medium Companies

A medium company is a company whose investment in plant and machinery does not exceed Rs.50 crore, and the annual turnover does not exceed Rs.250 crore.

Types of Company Based on Liability

The members of a company have either limited or unlimited liability. The liability of the company member arises at the time of bankruptcy, company loss, winding up or paying the company’s debt. Thus, a company established under the Companies Act, 2013 can also be classified based on the liability of its shareholders.

Limited By Shares

A company limited by shares means the liability of the company members is limited by the Memorandum of Association (MOA). The company members are liable only for the unpaid amount on the shares respectively held by them. The equity shares held by a member measure the shareholder’s ownership in the company.

Limited by Guarantee

A company limited by guarantee means the member’s liability is limited to the amount they guarantee to contribute towards the company’s assets. The member’s liability is limited by the company MOA. The members undertake in the MOA to contribute the guaranteed amount in the event of the company being wound up. The percentage of the member’s ownership is based on the amount guaranteed by them.

Unlimited Company

An unlimited company means the company members do not have any limit on their liability. If any debt arises, the member’s liability is unlimited and extends to their personal assets. Usually, the company entrepreneurs choose not to incorporate this type of company.

Types of Company Based on Control

The companies can be classified based on the ownership structure and control as follows:

Holding Company

A holding company is a company having the majority of voting powers of another company (subsidiary company). The holding company is the parent company controlling the subsidiary company’s policies, assets and management decisions. However, it remains uninvolved in the subsidiary’s day-to-day activities.

Subsidiary Company

A subsidiary company is owned by another company (holding company) either partially or entirely. The holding company controls the composition of the board of directors of the subsidiary company or more than 50% of its voting powers. Where a single holding company holds 100% voting powers, the subsidiary is known as the Wholly Owned Subsidiary (WOS) of the holding company.

Types of Company Based on Listing

The companies are classified into listed and unlisted companies based on access to capital. Every listed company must be a public company, but vice versa need not be true. An unlisted company can be a private or public limited company.

Listed Company

A listed company is a company which is registered on various recognised stock exchanges within or outside India. The shares of the listed companies are freely traded on the stock exchanges. They have to follow the guidelines given by the Securities Exchange Board of India (SEBI). 

A company that wishes to list its shares on stock exchanges should issue a prospectus to the general public for subscribing to its debentures or shares. A company can list its shares through an Initial Public Offer (IPO), while an already listed company can make a Further Public Offer (FPO).

Unlisted Company

An unlisted company is a company that is not listed on any recognised stock exchange, and its shares are not freely tradable on the stock exchanges. These companies fulfil their capital requirements by obtaining funds from friends, family members, relatives, financial institutions, or private placement. An unlisted company must convert to a public company and issue a prospectus if it wishes to list its securities on the stock exchanges.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state. 

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