Types of Companies

This resource describes the different types of companies on the basis of Incorporation, Registration, Liability & Ownership.

There are 3 different types of companies. They are divided on the basis of:-
(A ) Incorporation / Registration.
(B) Liability

(A) On the basis of Incorporation / Registration:

(1) Chartered Company: Chartered companies are the companies which were formed during 17th and 18th century by the Kings and Emperors by passing Special Charter known as "Royal Charter". The rules and regulations for the working and governing of the company are clearly mentioned in 'Royal Charter'. Nowadays chartered companies are not formed and these companies are not found in India. East India Company, Bank of England, etc. are the examples of chartered companies.

(2) Statutory Company: Statutory companies are formed by passing a special act, either by State Legislature or by Parliament. Generally Statutory Companies are formed to run the public utility concerns like Railways, Water works, Gas works, Electricity, etc. The rules and regulations for the working and governing of the company are clearly mentioned in the special act, known as "Statue". Life Insurance Corporation, Air India, Unit Trust of India, The Reserve Bank of India, Export Import Corporation of India, are the examples of statutory companies.

(3) Registered Company: A company registered under the Companies Act, is known as "Registered Company". The rules and regulations regarding its formation, working, and continuity of the company are clearly mentioned in the relevant Companies Act. In India all the companies except Chartered Companies and the Statutory Companies are Registered Companies. The registered company is owned by shareholders and managed by the elected representative of shareholders, which is the Board of Directors.

A Registered Company may be from one of the following companies:
(a) A Company Limited by Shares,
(b) A Company Limited by Guarantee,
(c) Private Company,
(d) Public Limited Company,
(e) Unlimited Liability Company etc.
Hindustan Lever Limited, Proctor and Gamble, etc. are some of the examples of Registered Companies.

(4) Foreign Company: Foreign Company is company which is registered outside India under the Companies Act of that respective country, having its branch for business in India. The Foreign Company has to submit the following documents with the Registrar of Companies within 30 days of establishing its business in India:
(a) A certified copy of Memorandum of Association and Article of Association of the company translated in English,
(b) The complete address of Registered Office of the Company,
(c) A list of directors and secretary of the company,
(d) The complete address of its Head Office in India.

(B) On the basis of Liability:

(1) Company Limited by Shares: The company where the liability of shareholders of the company is limited up to the extent of face value of the shares held by every shareholder is called company limited by shares. The shareholders are not responsible for the liabilities of the company and they cannot be called upon to pay even a single paisa more than that of the unpaid amount of the shares. These types of companies are very popular in India. The principles of limited liability attract investors, to invest in the shares of the company.

(2) Company Limited by Guarantee: The liability of members of the company is limited up to specific amount guaranteed by them. The purpose of such a guarantee is to enable the company to have funds to meet its liability at the time of winding up. The important features of such companies are:-
(a) Each member promises to pay a fixed amount in the event of wind up.
(b) This amount is known as guarantee amount.
(c) The amount of guarantee is laid down in the Memorandum of Association.
(d) The amount of guarantee is paid only in the case of winding up of the company.
(e) Such a company may or may not have share capital.
(f) The capital may be raised through entrance fees, membership fees, donations, etc.

Such company may be a public company or a private company and can be converted in to a company with liability, limited by shares by passing a special resolution. Examples of such companies are Trade Unions, Charitable Hospitals, Educational Institutions, etc.

(3) Company with Unlimited Liability: A company which is registered without the provision that the liability of its members is limited is an Unlimited Liability Company. Liability of members of such company is unlimited like the sole trader of sole trading concern and the partners of partnership firm. It means in the case of winding up of the company, the private property of the members can be taken over y the creditors for the recovery of their dues i.e. debts. Such companies are not popular in India.

(C) On the basis of Ownership:

(1) Private Company: A Private Company is a company which by its Articles of Association restricts the following:
(a) The right to transfer shares,
(b) Limits the number of its members to 50,
(c) Prohibits an invitation to public to subscribe to its shares or debentures.

A private company is an incorporated body, registered under the Companies Act with three important restrictive provisions in its Articles of Association, which contains rules and regulations for the internal management of the company. A private company requires minimum two members and two directors. A private company has to file the following documents with the Registrar of Companies.
(i) Memorandum of Association: It contain the information about the name, address, capital and about the objects for which it is formed. It is to signed by at least two persons. The words "Pvt. Ltd." Or "Private Limited" must be added with the name of the company.
(ii) Articles of Association: The articles contains the rules and regulations for the internal management of the Company.
(iii) Statutory Declaration: A declaration that all the legal requirements have been complied with. After satisfying himself the registrar issued a Certificate of Incorporation which qualifies the company to start its business.

Restrictions imposed on private Companies:
(1) A private limited company must include the words "private limited" with its name.
(2) A private company must have its own Articles of Association.
(3) The shares of private company are not transferable.
(4) A private company cannot invite public to subscribe its shares or debentures.
(5) The maximum number of members in a private company is restricted to 50.
(6) Every year private company must file three copies of Balance Sheet and Profit and Loss Account together with Auditors Report, to the Registrar of companies.
(7) A member of private company can appoint only one proxy.

(2) Public Company: Indian companies Act, 1956 defines, "A public company is a company which is not a private company and which does not have any restrictions of a Private Company."

A public company requires minimum seven members and there is no upper limit for the maximum no. of members. It requires at least three directors and the directors retire by rotation.

Public Company has to file the documents like Memorandum of Association, Articles of Association and Prospectus with the Registrar of Companies. Public company can adopt "Table-A" in its place of Articles of Association and can file Statement in Lieu of Prospectus in place of "prospectus". Public company has following features:-
(a) Public company collects capital from general public by way of issuing shares and debentures,
(b) The shares of Public company are freely transferable,
(c)The liability of the members of Public Limited Company is limited up to the extent of face value of he shares purchased by them,
(d) Public company must collect minimum subscription and must obtain Trading Certificate i.e. Certificate of Commencement of Business to start the business,
(e) Public company must start its business within one year of getting Incorporation Certificate otherwise it will be wound up by the court,
(f) It is also compulsory for a Public Company to hold statutory meeting within six months of obtaining "Trading Certificate".

(3) Deemed Public Company: As per section 43 (A) of Companies Amendment Act, 1960, a company which is originally registered as Private company but is converted into Public company due to operation of law or due to any of the following reasons, is termed as Deemed Public Company.
(a) If 25% or more paid up share capital of a private company is held by a public company
(b) If a private company holds 25% or more paid up capital is held by a public company
(c) If a private company holds 25% or more paid up capital of a Public company.

(4) Government Company: A government company is one in which, 51% or more, paid-up capital of the company is taken over either by Sate Government or by Central Government or by both. The government companies are incorporated under Indian Companies Act. It may be noted that in a government company, government is the major shareholder and majority of directors are appointed by the government.

(5) Multinational Company:A multinational company is the company which is registered in one country but operated its business in multiple countries. The multinational companies have huge investments and huge profits. They build up big Business Empire in many countries. Multinational companies create employments opportunities and these companies recruit and promote managerial persons on merit.

(6) Holding Company: Company which holds 50% or more paid up capital of another company i.e. Subsidiary Company is known as the Holding Company. Holding Company controls and manages the entire affairs of subsidiary company.

(7) Subsidiary Company: The Company of which, 50% or more paid up capital over by another company i.e. Holding Company is known as Subsidiary Company. The management of Subsidiary Company is controlled by Holding Company. But Subsidiary Company does not lose its identity.


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