Kinds OF COMPANIES UNDER THE COMPANIES ACT,2013
INTRODUCTION
The Companies Act 2013 has succeeded the Companies Act 1956 and it contains various provisions for governing the companies and the works done by a company. In addition, it contains various provisions for the smooth functioning and regulation of a corporate entity that is registered or incorporated under this act.
As per section 2(20) of the Companies Act 2013[1], ‘company’ means a company incorporated under this Act or under any previous company law. The companies can be of several Kinds and can be divided on various grounds. Further, these grounds are such as liabilities, listing, sizes, members, control, etc. The various Kinds of companies classified on different parameters are stated below.
KINDS OF COMPANIES ON THE BASIS OF LIABILITIES
Companies Limited by Shares
Limited Share Companies are defined under Section 2(22) of the Companies Act,2013[2]. As per the provision, ‘company limited by share means a company having the liability of its members limited by the memorandum to the amount if any, unpaid on the shares respectively held by them. Hence, this liability can be enforced anytime during the company’s existence or winding up.
Company Limited by Guarantee are defined under Section 2(21) of the Companies Act,2013.[3]
In such companies, the liability of members is limited by the memorandum to the amount guaranteed by them (such amount as they have respectively undertaken to contribute to assets of the company to meet the deficiency at the time of its winding up)
This liability/ guarantee can be enforced(demanded) only at the time of winding up and not before that.
Memorandum states different guaranteed amounts for each member of the company.
Such companies may or may not have share capital. If it has share capital, the liability of members will be two-fold i.e., they are liable for the amount remaining unpaid on shares as well as the amount payable under guarantee.
Unlimited Companies
Unlimited Companies are defined under Section 2(92) of the Companies Act,2013[4].
Members of such company have unlimited liability, extending to personal property to pay off company liabilities.
The Memorandum of such company must state that liability of its members is unlimited. Liability of members is enforceable only at the time of winding up.
Every member is liable to contribute in the proportion to his interest in the company.
Kinds OF COMPANIES ON THE BASIS OF MEMBERS
Person Companies are defined under Section 2(62) of the Companies Act,2013[5], upon the recommendation of the J.J Irani Committee. This type of company has only one member. One Person Company (OPC) was introduced in the 2013 Companies Act and did not exist before then.
It is mandatory to appoint a Nominee in these kinds of companies.
Private Companies
Section 2(68) of the Companies Act,2013 [6]contains provisions regarding Private Companies. A private company can have a minimum of 2 members and a maximum of 200 members. Their shares in a private entity cannot be freely transferred. The word ‘private’ must be included in the name of the company.
Public Company
Public Companies are defined under Section 2(71) of the Companies Act,2013[7]. A Public Company must have a minimum of 7 members and the number of maximum members is unlimited. There is no restriction on the transfer of shares in a private entity and they can be freely transferred. The word ‘Limited’ must be added at the end of the name of the company.
Kinds OF COMPANIES ON THE BASIS OF CONTROL OR HOLDING
Holding and Subsidiary Company
Section 2 (46) of The Companies Act, 2013 [8]defines a holding company as, “Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies”.
A holding company is a parent company, limited liability company, or limited partnership that controls a significant number of voting shares in another company is known as a holding company. The shareholding is set up so that the holding company can manage the subsidiary company’s management and control its policies.
According to Section 2 (87) of The Companies Act, 2013; [9]“Subsidiary company or subsidiary in with respect to any other company (that is to say the holding company), means a company in which, either the holding company controls the composition of the Board of Directors or exercises/controls more than half of the total share capital either on its own or together with one or more than one of its subsidiary companies:
Prescribed holding company classes cannot have prescribed numbers of subsidiary layers beyond a certain limit.
A subsidiary company is a company that is both owned and controlled by another company. The owning company is called a parent company or a holding company.
The parent of a subsidiary company may be the sole owner or one of several owners, of the company. If a parent company or holding company owns the full other company, that company is called a “wholly-owned subsidiary.”
Associate Company
This concept of associate company has been introduced by the Companies Act 2013. An associate company is one in which that other company has significant influence, but which is not a subsidiary company of that other company. Significant influence means control of at least 20% of the total voting power or of business decisions under an agreement
A joint venture company will be an associate company
Control of at least 20% translates to actually 20% to 50% because on exceeding 50%, the associate will actually become the subsidiary company.
A parent company is not required to consolidate the associate company’s financial statements. Rather the parent company records the associate company’s value as an asset in its Balance sheet.
KINDS OF COMPANIES ON THE BASIS OF LIABILITY
Listed Company
According to Section 2 (52) of The Companies Act, 2013[10], a listed company means a company that has any of its securities listed on any recognized stock exchange.
The stocks of a listed company can be freely traded on the stock exchange boards and these companies have to follow the guidelines issued by the Sock and Exchange Board of India (SEBI).
Unlisted Company
Unlisted companies are those companies whose stocks or shares are not listed on any of the stock exchange boards and the stocks of these kinds of company are not available for trade.
An unlisted company can become listed by issuing a prospectus and listing its securities on stock exchange boards.
OTHER kinds OF COMPANIES
Government Company
In such company, 51% of the paid-up share capital is held by the government. The share can be held by the central government or state government or partly by the central and partly by two or more governments. Since the legal status of the company does not change by being a government company, there are no special privileges given to them.
Foreign Company
‘Foreign company’ means any company or body corporate incorporated outside India which— (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.
A foreign company is one which is incorporated outside India but has a place of business in India. If a company has no place of business in India and only has agents there, it cannot be classified as a foreign company.
Section 8 Company
Any company registered under Section 8 of the Companies Act,2013[11] is known as a Section 8 Company. Companies registered for social welfare, charity, and meeting objectives towards society at large, have major objectives to promote commerce, arts, science, sports, education, research, and other related activities. Such companies obtain incorporation certificates from the central government and must comply with its rules.
Dormant Company
Dormant Companies are defined under Section 455 of the Companies Act,2013[12]. As per the provision, if a company is registered for a future project, holds an asset or intellectual property, and has no significant accounting transaction, it may apply to the Registrar for obtaining the status of a dormant company. The Registrar’s prescribed manner can be followed to accomplish this.
The company, formed for future projects, may not need to comply with all the regular company regulations.
Nidhi Company
Nidhi Companies are defined under Section 406(1) of the Companies Act,2013[13]. As per this section, “Nidhi” means a company that has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of a such class of companies.
Public Financial Institutions
Public Financial Institutions are government company that carry out the function of public financing.
(ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of subsection (1) of section 4A of the Company Act, 1956 (1 of 1956) so repealed under section 465 of this Act;
(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);
(iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Company Act, 1956 (1 of 1956) so repealed under section 465 of this Act;
(v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India: Provided that no institution shall be so notified unless— (A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one percent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;
Small Company
A small company is a new class of private limited company (introduced for the first time in the Companies Act 2013 via section 2(85)[15] whose paid-up share capital does not exceed 50 lakhs or turnover as per the P&L account of the preceding financial year, does not exceed 2 crores. However, a Holding or a Subsidiary company, a licensed company, or a company governed by any Special Act will not be regarded as a small company even if its capital or turnover is less than or equal to prescribed limits
These companies enjoy additional exemptions and privileges in addition to those enjoyed by private company. For example- their financial statements may not include cash flow statements, they may hold just 2 board meetings in a year compared to at least 4 board meetings per year for other companies, exemption from the mandatory rotation of auditors, etc.
The Company Act empowers the Central Govt to notify the sections that shall not apply to small company. Moreover, shall apply with modifications, adaptations, or exceptions.
A company’s status as a ‘small company’ may change annually based on changes in capital or turnover. Benefits may vary yearly, available in one and unavailable in the next, based on withdrawals and restoration.
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[1] Company Act,2013§ 2(20)
[2] The Company Act,2013§ 2(22)
[3] Company Act,2013§ 2(21)
[4] Company Act,2013§ 2(92)
[5] The Company Act,2013§ 2(62)
[6]Company Act,2013§ 2(68)
[7] Company Act,2013§ 2(71)
[8] The Company Act,2013§ 2(46)
[9] Company Act,2013§ 2(87)
[10] Company Act,2013§ 2(52)
[11] The Company Act,2013§ 8
[12] Company Act,2013§ 455
[13] The Company Act,2013§ 406(1)
[14] Company Act,2013§ 2(72)
[15] Company Act,2013§ 2(85)
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