Company forms of businesses have become immensely popular over the years. The growth of economy and increase in the complexity of various business operation has led to the scope to classify the companies under various groups. This article aims to draw your attention towards the conventional classification of the companies based upon certain identifiable common characteristics they can be grouped into below-mentioned classifications.
The Companies Act 2013 of India defines a company as-
“A registered association which is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability.”
Certain words from definition has been explained.
- Legal Person:- A legal personcould be human or a non-human entity which is recognised by law as having legal rights and is subject to obligations.
- A person or a group of person:- It is no more required to be an association of persons to form a company. A company can also be started as a single person company (one-person company).
Features & Characteristics of a Company
- Artificial legal person:- In the eyes of the law, A company is an artificial legal person which has the rights to acquire or dispose of any property, to enter into contracts in its own name, and to sue and be sued by others.
- Separate Legal Entity:- A company has a distinct entity and is independent of its members or people controlling it. A separate legal entity means that only the company is responsible to repay creditors and to get sued for its deeds. The individual members cannot be sued for actions performed by the company. Similarly, the company is not liable to pay personal debts of the members.
- Perpetual Existence:- Unlike other non-registered business entities, a company is a stable business organisation. Its life doesn’t depend on the life of its shareholders, directors, or employees. Members may come and go but the company goes on forever.
- Incorporated association:- A company comes into existence when it is registered under the Companies Act (or other equivalent act under the law). A company has to fulfil requirements in terms of documents (MOA, AOA), shareholders, directors, and share capital to be deemed as a legal association.
incorporation process which is defined under Section 7 of the Companies Act, 2013.
Incorporation is the day when the company acquires a legal identity i.e. the day when a company takes birth in the eyes of law. Section 2 of the Companies Act, 2013 defines the various kinds of companies and their facets.
- Classification of companies on the basis of incorporation.
As defined under Section 2(20) of the Companies Act, 2013, registered companies are the companies which get registered under the statute of the Companies Act. Companies are also provided with a certificate of incorporation by the Registrar of the Company.
As the name suggests, these are the companies that are formed by the means of a special statute passed by the Parliament or the State Legislature. The examples of statutory companies in India are the Reserve bank of India, the Life Insurance Corporation of India Act, etc.
The provisions of the Companies Act 2013 apply to statutory companies except where the said provisions are inconsistent with the provisions of the Act creating them. Statutory companies are mostly invested with compulsory powers. The parliaments both State and Centre are empowered to make such legislation for incorporation under the power endowed to them by the Constitution of India.
- Classification of the Companies on the basis of liability of the members.
Company Limited by Shares:
These types of companies are mentioned in Section 2(22) of the Companies Act, 2013. When the liability of the members of company limited to the amount, if any unpaid on shares respectively held by them. The liability can be enforced during company’s existence and even during it’s winding-up process. Once the payment towards the security is made by the shareholder or member then no liability beyond that is placed upon such member.
Company limited by guarantee:
These types of companies are mentioned in Section 2(21) of the Companies Act, 2013. It is a registered company in which, liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.
In such companies, the liability of the members is limited to the undertaking given by them. Clubs, trade associations, research associations and societies for promoting various objects are various examples of guarantee companies.
These companies as defined under Section 2(92) of the Companies Act, 2013. A company not having a limit on the liability of its members, in case of such a company every member is liable for the debts of the company as in an ordinary partnership in proportion to his interest in the company. These companies do not draw any popularity when it comes to Indian Market.
- On the basis of numbers of members:
As defined under Section 3(1)(b) of the Companies Act, 2013, are very restrictive in nature. There should be at least two persons to form a private limited company and maximum number of members can not exceed 50. Where two or more persons holds one or more shares in a company jointly, then they are considered as one member. The shares and debentures of such companies are not available for the public at large. The easy identification of Private companies is the ‘Pvt. Ltd.’ attached to its name.
As defined under Section 2(71) of the Companies Act, 2013, Public Companies are the ones which are not a private company. there should be at least 7 members to form a public company. It is the intrinsic nature of the public company that there is the right to transfer shares and debentures of the public company to the public at large. Only the securities of public company are capable of being dealt on stock exchange.
- On the basis of domicile:
Indian Company has been defined under Section 2(20) of the Companies Act, 2013 as any company registered under the Companies Act, 2013, or any other previous law is known as an Indian Company.
it means any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other manner.
under new companies Act, Section 2 (42) of the Companies Act, 2013, has widened the scope of the definition of foreign companies extending the same to the entities having their electronic presence in India.
- New kind of Companies recognised under the Act, 2013
One person company:
Under Section 2(62) of the Companies Act, a company in which one person is the whole and sole owner of the share capital of the company is known as a One person Company. In order to meet the statutory requirement of a minimum number of members, some dummy members hold one or two shares each. The dummy members are usually nominated by the principal shareholder. The principal shareholder enjoys all the profits of the business with limited liability. Such companies have been given legal sanctity.
Where a company is formed under Section 455 of the Company Act, 2013 for a future endeavour or to hold an asset which may be a physical or intellectual property and has no significant accounting transaction, such a company or inactive company can make an application to the Registrar in the prescribed manner for obtaining the status of the dormant company. A dormant company may be either a public company or a private company or a one person company.
- On the basis of miscellaneous factors
As defined under Section 2(45) of the Companies Act, 2013, It means any company in which not less than 51 percent of the paid up share capital is held by the Central Govt, and/or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments. The subsidiary of a Government company is also a Government company.
Holding & subsidiary company:
Under Section 2(46) of the Companies Act, 2013, a company is known as the holding company of another company if it has administrative control over another company. Under Section 2(87) of the Companies Act, 2013, a company is known as subsidiary of another company when control is exercised by the latter over the former called a subsidiary company.
A company will be a holding company of another in the following scenarios:
- Controls the composition of the Board of Directors of the other company.
- Exercises or controls more than 50% of the total share capital either on its own or together with one or more of its subsidiary companies.
These Companies as defined under Section 2(6) of the Companies Act, 2013, 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 is derived either from control of at-least 20% of the total share capital, or of business decisions under an agreement.
The Investment Companies as defined under section 186 of the Companies Act, 2013, are the companies which have a fundamental business or transaction relating to the securities of other companies. Securities may be of a nature of shares or debenture or other securities offered by such entity.
- On the basis of object
Not for Profit Company:
A company whose sole objective is to promote commerce, art, science, sports education, research, social welfare, religion, charity, protection of environment or any other useful purpose and not having any profit motive will be termed as a not-for-profit company. Such a company must apply its profits or other incomes in promoting its objects. It mustn’t make any payment of dividend to its members. Section 8 of Companies Act, 2103 is the only type of company that is a not-for-profit company.
These companies were previously defined under Section 25 of Companies Act, 1956 with more or less the same provisions. The new Act has, however, prescribed more objectives that Section 8 companies can have.
Famous examples of Section 8 companies include Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII). The objective of these companies is facilitating the growth of trade and commerce and India.
Nidhi means a company which has been incorporated with the object of developing the habit of thrift and reserve funds amongst its members and also receiving deposits and lending to its members only for their mutual benefit. Nidhi companies existed even prior to the existence of companies Act 2013. The basic concept of nidhi is “Principle of Mutuality”
A nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money between their members. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities.
Nidhi companies are governed by Nidhi Rules, 2014. They are incorporated in the nature of Public Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014. No RBI approval is necessary to register the company
Disclaimer: The entire contents of this article are solely for information purpose. The contents of this article have been prepared in accordance with the relevant provisions, and information available at the time of preparation.