Types of Companies

Companies have evolved into various forms to meet different business and regulatory needs. They can be classified based on liability, membership, and control. Understanding these classifications helps businesses choose the right structure for their operations.

Types of Companies

• Companies Limited by Shares
• Companies Limited by Guarantee
• Unlimited Companies
• One Person Companies (OPC)
• Private Companies
• Public Companies
• Holding and Subsidiary Companies
• Associate Companies
• Companies in terms of Access to Capital
• Government Companies
• Foreign Companies
• Charitable Companies
• Dormant Companies
• Nidhi Companies
• Public Financial Institutions

We can classify these companies into different categories.

Classification of Different Types of Companies

Companies on the Basis of Liabilities

a) Companies Limited by Shares
In these companies, shareholders are only liable for the unpaid portion of their shares. If the company is liquidated, their liability is restricted to the amount they haven’t yet paid on their shares.

b) Companies Limited by Guarantee
Members of these companies agree to pay a specific amount if the company is wound up. They are not required to contribute beyond the amount they guaranteed.

c) Unlimited Companies
Members of unlimited companies have unlimited liability, meaning their personal assets can be used to settle business debts if the company is liquidated.

Companies on the Basis of Members

a) One Person Companies (OPC)
These companies have a single member who owns 100% of the shares. Unlike sole proprietorships, OPCs are recognized as distinct legal entities and don’t require a minimum share capital.

b) Private Companies
Private companies restrict share transfers and must have at least two and a maximum of 200 members. Former and current employees who hold shares are also counted as members.

c) Public Companies
Public companies allow the free transfer of shares and require a minimum of seven members. There is no upper limit to the number of shareholders.

Companies on the Basis of Control

a) Holding and Subsidiary Companies
A holding company owns more than 50% of another company’s shares, controlling its management and policies. The controlled company is called a subsidiary.

b) Associate Companies
A company in which another company holds at least 20% shares is classified as an associate company. The parent company can influence business decisions but does not have full control.

Companies in Terms of Access to Capital

Companies can be either listed or unlisted, depending on whether their shares are traded on stock exchanges.

• Listed Companies: Public companies whose shares are traded in stock markets.
• Unlisted Companies: Companies that do not trade their shares on stock exchanges. Both public and private companies can be unlisted.

Other Types of Companies

a) Government Companies
These are companies where more than 50% of shares are owned by the central or state government, either solely or jointly.

b) Foreign Companies
These are companies registered outside the country but conducting business within it.

c) Charitable Companies (Section 8 Companies)
Registered under Section 8 of the Companies Act, these companies operate for charitable purposes such as education, arts, sports, and social welfare, without profit motives.

d) Dormant Companies
Formed for future projects, these companies do not engage in significant business transactions.

e) Nidhi Companies
These companies promote saving habits among members and operate by accepting deposits and lending within their member base.

f) Public Financial Institutions
Government-controlled financial organizations such as Life Insurance Corporation (LIC) and Unit Trust of India (UTI) fall under this category.

Solved Example of Types of Companies

Question: Identify the type of company based on the following characteristics:

1. Shares are freely transferable.
2. Only one member exists.
3. The government owns 75% of shares.
4. Shares are not listed on stock exchanges.
5. No profit motives.
6. 35% shares held by another company.

Answers:

1. Public Companies
2. One Person Companies (OPC)
3. Government Companies
4. Private or Public Companies
5. Section 8 Companies
6. Associate Companies

By understanding these classifications, businesses and investors can make informed decisions about the type of company best suited to their needs.