Types of Companies under Companies Act, 2013

INTRODUCTION:

The article aims to elaborate each type of Company as governed under Companies Act, 2013 (CA, 2013). The Act provides for types of companies that can be promoted and registered under the Act.

Firstly what does company mean? : As per section 2(20) of the CA, 2013 “company” means a company incorporated under this Act or under any previous company law.

Commonly a company may be defined as “an incorporated association which is an artificial person, having a separate legal entity, with a perpetual succession, a common seal (if any), and a common capital compromised of transferable shares and limited liability.”

TYPES OF COMPANY — ANALYSIS

A. Types of Company on the basis of Incorporation

1. Statutory Companies :

These companies are constituted by a special Act of Parliament or State Legislature. These companies are formed mainly with an intention to provide the public services.

Though primarily they are governed under that Special Act, still the CA, 2013 will be applicable to them except where the said provisions are inconsistent with the provisions of the Act creating them (as Special Act prevails over General Act).

Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.

2. Registered Companies:

Companies registered under the CA, 2013 or under any previous Company Law are called registered companies.

Such companies comes into existence when they are registered under the Companies Act and a certificate of incorporation is granted to it by the Registrar.

B. Types of Company on the basis of Liability

1. Companies limited by shares:

A company that has the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them is termed as a company limited by shares.

The liability can be enforced during existence of the company as well as during the winding up. Where the shares are fully paid up, no further liability rests on them.

For example, a shareholder who has paid 75 on a share of face value 100 can be called upon to pay the balance of 25 only. Companies limited by shares are by far the most common and may be either public or private.

2. Companies limited by guarantee:

Company limited by guarantee is a company that has the liability of its members limited to such amount as the members may respectively undertake, by the memorandum, to contribute to the assets of the company in the event of its being wound-up. In case of such companies the liability of its members is limited to the amount of guarantee undertaken by them.

The members of such company are placed in the position of guarantors of the company’s debts up to the agreed amount.

Clubs, trade associations, research associations and societies for promoting various objects are various examples of guarantee companies.

3. Unlimited Liability Companies:

A company not having a limit on the liability of its members is termed as unlimited company. Here the members are liable for the company’s debts in proportion to their respective interests in the company and their liability is unlimited.

Such companies may or may not have share capital. They may be either a public company or a private company.

C. Types of Company on the basis of number of members

1. Public Company:

• Defined u/s 2(71) of the CA, 2013 – A public company means a company which is not a private company.
• Section 3(1) of the CA, 2013– Public company may be formed for any lawful purpose by 7 or more persons.
• Section 149(1) of the CA, 2013 – Every public company shall have minimum 3 director in its Board.
• Section 4(1)(a) of the CA, 2013 – A public company is required to add the words “Limited” at the end of its name.
• It is the essence of a public company that its shares and debentures can be transferable freely to the public unlike private company. Only the shares of a public company are capable of being dealt in on a stock exchange.
• A private company that is a subsidiary of a public company, will be considered a public company.

 2. Private company:

• Defined u/s 2(68) of the CA, 2013 –

A private company means a company which by its articles—

a. Restricts the right to transfer its shares;

b. Limits the number of its members to 200 hundred (except in case of OPC)

Note:

1. Persons who are in the employment of the company; and persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall be excluded.
2. Where 2 or more persons hold 1 or more shares in a company jointly they shall be treated as a single member.

• Prohibits any invitation to the public to subscribe for any securities of the company;
• Section 3(1) of the CA, 2013 – Private Company may be formed for any lawful purpose by 2 or more persons.
• Section 149(1) of the CA, 2013 – Every Private company shall have minimum 2 director in its Board.
• Section 4(1)(a) of the CA, 2013 – A private company is required to add the words “Private Ltd” at the end of its name.
• Special privileges – Private Companies enjoys several privileges and exemptions under the Companies Act.

3. One Person Company (OPC):

• With the enactment of the Companies Act, 2013 several new concepts was introduced that was not in existence in Companies Act, 1956 which completely revolutionized corporate laws in India. One of such was the introduction of OPC concept.
• This led to the avenue for starting businesses giving flexibility which a company form of entity can offer, while also offering limited liability that sole proprietorship or partnerships does not offers.
• Defined u/s 2(62) of the CA, 2013 – One Person Company means a company which has only one person as a member.
• Section 3(1) of the CA, 2013 – OPC (as private company) may be formed for any lawful purpose by 1 persons.
• Section 149(1) of the CA, 2013 – OPC shall have minimum 1 director in its Board, its sole member can also be director of such OPC.
• Some Feature explained! –
• • Single-member: OPCs can have only 1 member or shareholder, unlike other private companies.
  • Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the sole member of the company has to mention a nominee while registering the company. Since there is only one member in an OPC, his death will result in the nominee choosing or rejecting to become its sole member. This does not happen in other companies as they follow the concept of perpetual succession.
  • Special privileges: OPCs enjoys several privileges and exemptions under the Companies Act.

D. Types of Company on the basis of Domicile

1. Foreign company:

• Defined u/s 2(42) of the CA, 2013 – “foreign company” means any company or body corporate incorporated outside India which,—

1. 1. has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
   2. conducts any business activity in India in any other manner.

• Section 379 to Section 393 of the CA, 2013 prescribes the provisions which are applicable on such companies.

2. Indian Company:

• A company formed and registered in India is known as an Indian Company.

E. Other Types of Company:

1. Section 8 Company:

• A section 8 company is registered as a limited company under section 8 of the CA, 2013 and holds the licence from Central Government (CG) and

1. has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

2. intends to apply its profits, if any, or other income in promoting its objects; and

3. intends to prohibit the payment of any dividend to its members.

• Proviso to Section 4(1)(a) of the CA, 2013 – Section 8 Company is exempted from clause (a) of Section 4(1) which means Section 8 Company is neither required to add the word “Ltd” nor words “Private Ltd” at the end of its name.
• Section 8 of the CA, 2013 also laid down the provision related to Incorporation, application for licence as section 8 company, grant of licence by CG and revocation of licence by CG.
• Special privileges: Section 8 Company enjoys several privileges and exemptions under the Companies Act.

2. Government Company:

• Defined u/s 2(45) of the CA, 2013 – “Government company” means any company in which not less than 51 % of the paid-up share capital is held 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, and includes a company which is a subsidiary company of such a Government company. Explanation – “paid-up share capital” shall be construed as “total voting power”, where shares with differential voting rights have been issued.

• Special privileges: Government Company enjoys several privileges and exemptions under the Companies Act.

3. Small Company:

• Defined u/s 2(85) of the CA, 2013 – “small company” means a company, other than a public company,—

1. paid-up share capital of which does not exceed 50 lakh rupees or such higher amount as may be prescribed which shall not be more than 10 crore rupees; and

2. turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 100 crore rupees

Provided that nothing in this clause shall apply to—

• • a holding company or a subsidiary company;
  • a company registered under section 8; or
  • a company or body corporate governed by any special Act;

• Special privileges: Small Company enjoys several privileges and exemptions under the Companies Act.

4. Subsidiary Company:

• Defined u/s 2(87) of the CA, 2013 –  “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company—

1. controls the composition of the Board of Directors; or

2. exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Explanation: For the purposes of this clause-

1. a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

2. the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

3. the expression “company” includes any body corporate;

4. “layer” in relation to a holding company means its subsidiary or subsidiaries.

5. Holding Company:

• Defined u/s 2(46) of the CA, 2013 –“holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;

Explanation: For the purposes of this clause, the expression “company” includes any body corporate.

6. Associate Company:

• Defined u/s 2(6) of the CA, 2013 – “associate company”, 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.

Explanation: For the purpose of this clause:

1. the expression “significant influence” means control of at least 20% of total voting power, or control of or participation in business decisions under an agreement;

2. the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;

7. Producer Company:

• Common parlance- A producer company can be defined as a legally recognized body of farmers/ agriculturists with the aim to improve the standard of their living, and ensure a good status of their available support, incomes and profitability.
• Definition- “Producer Company” means a body corporate having objects or activities specified in section 581B and registered as Producer Company under the Companies Act, 1956.
• Proviso to section 465(1) of the CA, 2013 prescribes – that the provision of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies.

Note: Recently the Companies (Amendment) Bill, 2020 was introduced in LokSabha i.e. on March 17, 2020. Thus with this bill aims to remove these provisions and adds a new chapter in the Act with similar provisions on producer companies.

• Some Conditions for Producer Company explained! :

• • Only persons engaged in an activity connected with, or related to, primary produce can participate in the ownership.
  • The members have necessarily to be primary producers.
  • Name of the company shall end with the words “Producer Company Limited“.
  • On registration, the Producer Company shall become as if it is a private limited company for the purpose of application of law and administration of the company, However it shall comply with the specific provisions of part IXA until a special Act is enacted for Producer Companies.
  • To incorporate Producer Company any of the following combination of producers is required:
  • 10 or more producers (individuals); or
  • 2 or more producer institutions; or
  • Combination of the above 2.
  • Every Producer Company shall have at least 5 director but not more than 15. (Provided that in the case of an inter-State co-operative society incorporated as a Producer Company, such Company may have more than 15 directors for a period of one year from the date of its incorporation as a Producer Company.)
  • PART IXA of Companies Act 1956 comprises of XII Chapters which prescribes different provisions to be complied by Producer Company.

8. Dormant Company:

• In case of company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company.
• Thereafter Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate.
• “Inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
• In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.
• Registrar have power to strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.

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