Types of Companies in India

Overview of Different Types of Companies in India

Here is a brief overview of different types of companies in India:

• Public Limited Company

In this company, the general public of India holds shares of the company and they can easily trade these shares as it is listed on the stock exchange market. Though there is no limitation on the number of shareholders, at least 7 members must be present to establish this company. 

• Private Limited Company

In India, a private limited company is a privately owned business entity with limited liability. This type of company has a maximum of 200 shareholders. The shares of this company cannot be traded or transferred publicly.

• One Person Company 

One Person Companies (OPC) is the one with only one shareholder, who can also be the director of the company. OPCs retain complete control over operations without the requirement of any minimum share capital, making it suitable for small businesses seeking to limit liability.

• Companies Limited by Guarantee 

Also known as Guarantee Company, this company’s members promise to contribute a specific amount to the company's assets if it closes down. This promise limits their financial responsibility. The amount each member commits to determines their ownership stake in the company.

• Companies Limited By Shares

In a company limited by shares, the Memorandum of Association (MOA) restricts the liability of its members. Members are only liable for any outstanding amounts on the shares they hold. These companies issue shares via IPO (Initial Public Offering). The ownership of a shareholder in the company is determined by the equity shares they possess.

• Unlimited Company

It is a kind of private company where there is no limitation on the liability of the company’s members. This company may or may not have a share capital. If there is a sudden rise in debt of the company, the liability of the member increases and this can extend to the personal assets of the members. 

• Small Companies

Small companies are those with plant and machinery investments under ₹10 crore and annual turnover below ₹50 crore. The Companies Act, 2013, considers companies with paid-up share capital below ₹4 crore and annual turnover below ₹40 crore as small companies, offering them various benefits.

• Micro Companies

Micro companies are companies with plant and machinery investments not surpassing ₹1 crore and an annual turnover not exceeding ₹5 crore.

• Medium Companies

Medium companies have plant and machinery investments not exceeding ₹50 crore and annual turnover not exceeding ₹250 crore.

• Holding Company

A holding company is a company that owns one or more other companies. It is like a parent company, and the companies it owns are called subsidiaries. The holding company either owns more than half of another company's shares or controls its board of directors, either directly or through another company.

• Subsidiary Company 

A subsidiary company is owned and controlled by another company, known as a parent or holding company. The parent company can be the sole owner or one of several owners of the subsidiary. When a parent or holding company fully owns another company, it is called a ‘wholly-owned subsidiary’.

• Listed Company

A listed company is one of the types of public sector companies whose shares are listed in the stock exchange market and are traded publicly. 

• Unlisted Company 

Unlisted companies are not listed on the stock market, so they are privately owned. These companies cannot raise funds publicly and become capital investors. Their shares trade ‘over the counter’, where the agreements of the deal are tailored to the buyers and sellers, therefore avoiding exchange regulations. Unlisted companies have more control over their operations.

• Government Company

When the central or state government or both hold more than 50% of the share capital of a company, it is known as a government company. 

• Foreign Company

Foreign companies are those companies that are incorporated outside India. They conduct business operations in India, either on their own or by collaborating with other companies.

• Associate Company

An associate company is a business that other companies have a big influence on. To influence companies, one needs to own at least 20% of that company's shares. A joint venture company is a type of associate company.

• Section 8 Company

Section 8 Companies, defined in the Companies Act, 2013, are entities that aim to help society by promoting activities like commerce, art, science, education, charity and environmental protection. These companies are often called non-profit organisations because their main goal is to help society rather than make money for their members.

• Dormant Company

A dormant company is one that is not doing any business for a while, usually for two consecutive financial years. It is still registered but not active because it might be waiting to start something new or pausing the operations temporarily. However, these companies still have some duties, like keeping a minimum number of directors and filing certain documents, even if dormant. 

The Bottom Line

Understanding the various types of companies in India is crucial for anyone planning to start a business. Each type of company has its own set of advantages and limitations. These classifications based on members, liability, size, control, access to capital and ownership offer a clear roadmap for structuring businesses.