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Different Types of Companies Under the Companies Act, 2013
Introduction
The landscape of business in India is governed by various laws and regulations, with the Companies Act, 2013 playing a pivotal role in defining the structure, formation, and types of companies. Entrepreneurs can register different types of companies based on their objectives, ownership structure, and liabilities. Understanding these classifications not only aids in compliance but also helps businesses leverage benefits available under different regulatory frameworks, such as the Micro, Small and Medium Enterprises (MSME) Act. This blog aims to provide a comprehensive overview of the types of companies as per the Companies Act, 2013, their classifications, and the associated benefits.
Types of Companies Under the Companies Act, 2013
The Companies Act, 2013 allows entrepreneurs to establish various types of companies, each serving distinct purposes. Let’s delve into the primary classifications:
1. One Person Company (OPC)
The One Person Company (OPC) is a groundbreaking concept introduced by the Act, allowing an individual to operate as a single-member company. The sole member can also serve as the director, enabling complete control over the business. However, an OPC can appoint a maximum of 15 directors, ensuring a robust governance structure.
2. Private Limited Company
A Private Limited Company can have a maximum of 200 members and requires at least two members to be established. The key feature is the restriction on share transfer, making it suitable for businesses that prefer confidentiality. It mandates a minimum of two directors and allows up to 15 directors.
3. Public Limited Company
In contrast, a Public Limited Company allows shares to be held by the general public, with no cap on the number of shareholders. At least seven members are needed to establish a public company, and it must have three directors, with the possibility of adding more.
4. Section 8 Company (NGO)
Section 8 companies are established for charitable purposes. These entities focus on promoting areas like education, social welfare, and environment protection. Importantly, they do not distribute dividends to members, as profits are reinvested in promoting their activities.
Types of Companies Based on Size
The Micro, Small and Medium Enterprises (MSME) Act provides additional classifications based on size to ensure these companies receive the benefits they need for growth:
1. Micro Companies
A Micro Company has an investment in plant and machinery not exceeding ₹1 crore and an annual turnover not exceeding ₹5 crore.
2. Small Companies
A Small Company has an investment ceiling of ₹10 crore and an annual turnover of ₹50 crore. Under the Companies Act, a small company also refers to entities with paid-up capital below ₹4 crore and annual turnover below ₹40 crore.
3. Medium Companies
A Medium Company is characterized by an investment in plant and machinery not exceeding ₹50 crore and an annual turnover not exceeding ₹250 crore.
Types of Companies Based on Liability
The liability of members in a company is a crucial aspect that defines its operational dynamics:
1. Limited by Shares
In a Company Limited by Shares, members’ liability is confined to the unpaid amount on their shares. This structure safeguards members from financial loss beyond their investment.
2. Limited by Guarantee
A Company Limited by Guarantee binds members to contribute a predetermined amount to the company’s assets in the event of liquidation.
3. Unlimited Company
An Unlimited Company exposes members to unlimited liability, meaning their personal assets can be used to cover the company’s debts. This structure is rarely chosen by entrepreneurs due to the associated risks.
Types of Companies Based on Control
Companies can also be classified based on ownership and control:
1. Holding Company
A Holding Company controls a subsidiary company by owning the majority of its voting powers. Although it manages strategic decisions, it generally avoids day-to-day operations.
2. Subsidiary Company
A Subsidiary Company is partially or fully owned by another company (the holding company) and must adhere to its strategic directives.
Types of Companies Based on Listing
Companies are classified based on their access to capital through public markets:
1. Listed Company
A Listed Company is registered on recognized stock exchanges, allowing its shares to be freely traded. It must comply with regulations from the Securities Exchange Board of India (SEBI).
2. Unlisted Company
An Unlisted Company is not registered on any stock exchange, with shares that are not freely tradable. These companies often seek funds through private placements.
Conclusion
Understanding the various types of companies under the Companies Act, 2013 is essential for entrepreneurs and business owners to navigate the complexities of business regulations in India. Each company type offers distinct advantages, compliance requirements, and opportunities for growth. By selecting the right structure, businesses can better position themselves to leverage government benefits and succeed in a competitive landscape.
FAQs
1. What is a One Person Company (OPC)?
An OPC allows a single individual to own and operate a company while having a separate legal identity.
2. How is a Private Limited Company different from a Public Limited Company?
A Private Limited Company restricts share transfer and limits membership to 200, whereas a Public Limited Company allows shares to be offered to the general public with no limit on membership.
3. What are the criteria for classifying a Micro Company under the MSME Act?
A Micro Company is defined by an investment in plant and machinery not exceeding ₹1 crore and an annual turnover not exceeding ₹5 crore.
4. What is the liability of members in a Limited by Shares company?
In a Limited by Shares company, members are liable only for the unpaid portion of their shares, protecting them from further financial losses.
5. What is the significance of a Holding Company?
A Holding Company controls one or more subsidiary companies and manages their policies without directly engaging in daily operations.
Tags:Income Tax, GST
Ccompany Law