Companies form business organizations have become very popular over the years. Their establishment has led to the incorporation of so many types of companies. Companies are to be classified on the basis of incorporation, the liability of members, ownership and control, nationality or jurisdiction, and transferability of shares.

1.  Classification of Companies according to mode of incorporation:

a) Chartered Company: Companies that are formed by the Royal Charter or on any special order granted by the King or  Queen are called as Chartered Companies.  Such companies enjoy exclusive powers and privileges and can be set up only in the countries having a system of Kingship. This type of company is not found in India nowadays.

Examples:  The Bank of England, The East India Company

b) Statutory company: Statutory company is formed under a special Act passed by Parliament or by the State legislature. The powers of such a company are defined by the Act constituting it.  This company is not required to have a Memorandum of Association and need not use the word ‘Limited’ against its name. The audit of such a company is to be conducted under the supervision of C& AG ( Comptroller and Auditor General of India).

Examples: The Reserves bank of India,  The Life Insurance Corporation of India

c) Registered or incorporated company: A company that is registered under the Companies Act is known as a Registered Company. Nowadays registered companies are most common in practice.

Examples: Steel Authority of India  Ltd, Maruti Udyog  Ltd., and Reliance Industries

2. Classification of Companies according to liability of members

a) Company limited by shares: A company in which the liability of the members is limited to the face value of the shares held by them is known as Company limited by shares. If a member has paid the full face value of the shares held by him, he does not owe any further liability to the company. But in the case of partly paid shares, the liability of members is limited to the unpaid amount on the shares held by them.

b) Company Limited by guarantee: In this type of company, the liability of members is limited to an amount as they agree to contribute to the assets of the company in the case of winding up of the company. This amount is known as the ‘guarantee’ and it is also stated in the Memorandum of Association. The amount which was guaranteed by the members can only be called up at the time of winding up of the company. This type of company is normally formed to promote education, art, science, culture, and sports.

Not for profit Companies:  Sec 25 companies are generally formed to promote charity and philanthropy or any other useful public objectives and have to invest profit or other income from it to further promote these aims, unlike a regular company where shareholders and owners make profits or receive dividends.

c) Unlimited liability: In this company, the liability of every member is unlimited and extends to his personal property. The members are personally liable to pay the debts of the company as per their share of interest. Sec 12-C  of the Companies Act, 1956 provides the incorporation of a company having an unlimited liability of its members.

3. Classification of Companies according to ownership and control

a) Holding company:  Any company that directly or indirectly holds more than half of the equity share capital of another company or controls the composition of the Board of Directors of some other company.  A company can become a holding company of another company in the following ways:

i )  By holding more than 50 % of the issued equity capital of the company

ii) By holding more than 50% of the voting rights in the company

iii) By holding the right to appoint the majority of the directors of the company

b) Subsidiary company:  The subsidiary company is the one in which another company holds more than 51% of the nominal value of its equity share capital or more than 51 % of its voting power or control the majority composition of its Board of Directors or is the subsidiary of another subsidiary company.

c) Government Company: A Government company is the one in which 51 % or more of the paid-up share capital is held by the Central or State Governments.   A company can be partly or fully owned by the Government. Government Companies are incorporated under the Companies Act, 1956.  Normally, public enterprises which undertake industrial and commercial activities are incorporated as Government companies.

Examples: Hindustan Shipyard, Hindustan Aeronautics Limited, Steel Authority of India Limited (SAIL), Bharat Heavy Electricals Limited (BHEL)

4. Classification of Companies On the basis of nationality or jurisdiction

a) Indian Company: A company that is incorporated in India is known as an Indian Company. It should be registered under the provisions of the Indian Companies Act, 1956. Its registered office should be in India though it may carry on the business outside India.

b) Foreign Company: A company which is incorporated outside India but carries on the business in India through its branches is known as Foreign Company. The Companies Act 1956 provides the same provisions for foreign companies carrying on business in India. In case 51 % or more of the paid-up capital of a foreign company is held by one or more citizens or/and one or more corporate bodies incorporated in India, such a company should comply with the formalities prescribed as regards to the business carried on in India, as if it were a company incorporated in India. A foreign company must file the following documents within the 30 days of  its incorporation in India:

i )  Certified copies of its MOA( Memorandum of Association) and AOA ( Articles of Association)

ii) full address of its registered office

iii) full particulars of its directors and secretary

iv) Name and address of its authorized representative in India

v) full address of its principal place of business in India

c) Multinational company: Multinational company is the company which has production and marketing facilities in several countries. A multinational company can operate in different countries through branches, franchises, joint ventures, and subsidiary companies.

Examples: IBM, Pepsi, Nestle, Siemens

5. Classification of Companies On the basis of Transferability of shares

a) Private Company:  A  private company means which has a paid-up capital of Rs 1 lakh or higher paid-up capital as prescribed and which by its Articles of Association:

(a) restricts the right of members to transfer its shares;

(b) has a minimum of 2 and a maximum of 200 members, excluding the present and past employees;

(c) does not invite the public to subscribe to its shares or debentures

(d) does not invite or accept deposits from persons other than its members, directors, or their relatives.

The minimum number of members to form a private company is two and a private company must use the word “Private Limited” or “Pvt. Ltd.” in its name.

 Earlier the definition had prescribed a minimum paid-up share capital of Rs. 1 lakh for private companies, but an amendment in 2005 removed this requirement. Private companies can now have a minimum paid-up capital of any amount.

b) Public company:  A public company means a company which

(a) is not a private company:

(b)  has a minimum of 7 members and no limit on the maximum members

(c) has a paid-up capital  of  Rs 5 lakh or higher paid-up capital as may be prescribed

(d) has no restriction on transfer of securities

(e) a private company which is a subsidiary of a public company

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February 2023