Types and Classification of Companies Under the Companies Act, 2013

Types and Classification of Company Under Companies Act, 2013

The Companies Act, 2013, provides a comprehensive framework for the formation, regulation, and dissolution of companies in India. Understanding the various types and classifications of companies under this Act is crucial for entrepreneurs, legal professionals, and stakeholders. This document outlines the key types and classifications of companies as per the Companies Act, 2013.

1. Classification Based on Incorporation

A. Statutory Companies
– **Definition**: Companies established by a special act of Parliament or state legislature.
– **Examples**: Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC).

B. Registered Companies
– **Definition**: Companies formed and registered under the Companies Act, 2013, or previous company laws.
– **Sub-Classification**: Private Limited Companies, Public Limited Companies, One Person Companies, etc.

2. Classification Based on Liability

A. Companies Limited by Shares
– **Definition**: Companies where the liability of members is limited to the amount unpaid on their shares.
– **Examples**: Most private and public limited companies.

B. Companies Limited by Guarantee
– **Definition**: Companies where the liability of members is limited to the amount they have agreed to contribute in the event of winding up.
– **Purpose**: Typically used for non-profit organizations, clubs, and associations.

C. Unlimited Companies
– **Definition**: Companies where there is no limit on the liability of members; members’ personal assets can be used to pay off company debts.
– **Examples**: Rarely used, mainly in specific industries or structures.

3. Classification Based on Number of Members

A. One Person Company (OPC)
– **Definition**: A company with a single member.
– **Features**: Simplified regulatory framework, no requirement for annual general meetings.

B. Private Limited Company
– **Definition**: A company with a minimum of 2 and a maximum of 200 members.
– **Features**: Restrictions on the transferability of shares, cannot invite the public to subscribe to shares.

C. Public Limited Company
– **Definition**: A company with a minimum of 7 members and no upper limit.
– **Features**: Can invite the public to subscribe to shares, shares freely transferable.

4. Classification Based on Control

A. Holding Company
– **Definition**: A company that controls another company (subsidiary) by holding a majority of its shares or having significant influence.
– **Examples**: Tata Sons is the holding company for various Tata Group companies.

B. Subsidiary Company
– **Definition**: A company that is controlled by another company (holding company).
– **Features**: Follows the directions and policies of the holding company.

C. Associate Company
– **Definition**: A company in which another company holds a significant influence but not a majority stake (20% to 50%).
– **Features**: Influenced but not controlled by the other company.

5. Classification Based on Ownership

A. Government Company
– **Definition**: A company in which not less than 51% of the paid-up share capital is held by the Central Government, State Government, or partly by both.
– **Examples**: Bharat Heavy Electricals Limited (BHEL), National Thermal Power Corporation (NTPC).

B. Non-Government Company
– **Definition**: Companies where more than 51% of the paid-up share capital is held by private entities or individuals.
– **Features**: Privately owned and managed.

6. Classification Based on Purpose

A. Non-Profit Company (Section 8 Company)

– **Definition**: Companies formed for promoting commerce, art, science, charity, or any other useful purpose, without the intention of earning profits.
– **Features**: Profits are reinvested in the company, tax benefits available.

B. For-Profit Company
– **Definition**: Companies formed with the intention of earning profits for their shareholders.
– **Features**: Profits distributed as dividends to shareholders.

7. Classification Based on Listing Status

A. Listed Company
– **Definition**: A company whose shares are listed and traded on a recognized stock exchange.
– **Features**: Subject to stringent regulatory requirements and disclosure norms.

B. Unlisted Company
– **Definition**: A company whose shares are not listed on any stock exchange.
– **Features**: Less stringent regulatory requirements compared to listed companies.

8. Other Classifications

A. Small Company
– **Definition**: A private company with a paid-up capital not exceeding ₹50 lakh and turnover not exceeding ₹2 crore.
– **Features**: Simplified compliance requirements.

B. Dormant Company
– **Definition**: A company formed for a future project or to hold an asset/intellectual property and has no significant accounting transaction.
– **Features**: Can be declared dormant by applying to the ROC.

The Companies Act, 2013, provides a robust framework for the formation and management of various types of companies, each catering to different business needs and objectives. Understanding these classifications helps stakeholders choose the appropriate company structure, ensuring compliance and optimizing operational efficiency.

Understanding the types and classification of companies under the Companies Act, 2013, in India is essential for entrepreneurs, investors, and professionals. Factors influencing the classification of companies—such as size, ownership structure, business activity, liability, and geographical scope—provide insights into the diverse corporate landscape.

Selecting the appropriate type of company and complying with the associated regulations allows stakeholders to lay a strong foundation for success in the corporate world. It is crucial to seek professional advice and stay updated with the Companies Act to ensure compliance and make informed decisions.

By availing the benefits and fulfilling the obligations of each type of company, entrepreneurs can contribute to a vibrant and sustainable business ecosystem in India.

Reach out to legal professionals specializing in company registration services to get your business incorporated as one of the types of companies and start reaping its benefits!

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