Types of Companies in India

Companies in India are classified based on various parameters such as ownership, liability, number of members, control, and incorporation. The Companies Act, 2013, governs the formation, functioning, and regulation of companies in India. It defines a company as an artificial legal person created by law, having a separate legal entity, perpetual succession, and limited liability of its members. Understanding the different types of companies is essential for entrepreneurs, investors, and policymakers as it determines their legal obligations, tax implications, and operational structure.

Classification Based on Incorporation

The method of incorporation determines the legal existence and status of a company.

1. Chartered Companies: These are companies incorporated under a royal charter or special authority from the Crown. They were prevalent during the colonial era, such as the East India Company. In modern India, such companies no longer exist.
2. Statutory Companies: Formed under a special Act of Parliament or State Legislature, these companies serve public or national interests. Examples include the Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), and Food Corporation of India (FCI). These companies operate under specific legislation rather than the Companies Act.
3. Registered Companies: These are the most common type, formed and registered under the Companies Act, 2013 (or the earlier Companies Act, 1956). Once registered, they acquire a separate legal identity distinct from their members. Examples include Infosys Limited, Tata Motors Limited, and Reliance Industries Limited.

Classification Based on Liability of Members

The liability of shareholders defines the financial responsibility of members in case of company debts or losses.

1. Companies Limited by Shares: The liability of members is limited to the unpaid amount on their shares. If the shares are fully paid, no further liability exists. Most companies in India fall into this category. Example: HDFC Bank Limited.
2. Companies Limited by Guarantee: Here, members’ liability is limited to the amount they agree to contribute to the company’s assets in case of winding up. Such companies are generally formed for non-profit purposes such as charitable, cultural, or educational objectives. Example: Federation of Indian Chambers of Commerce and Industry (FICCI).
3. Unlimited Companies: In this case, there is no limit to members’ liability. If the company’s assets are insufficient to cover debts, members must contribute personally without restriction. This form is rare in India due to high financial risk.

Classification Based on Number of Members

The number of members defines whether a company is private, public, or one-person.

1. Private Limited Company: A private company restricts the right to transfer its shares and limits the number of members to 200. It cannot invite the public to subscribe to its shares or debentures. Private companies are suitable for small and medium-sized businesses. Examples include Infosys Technologies Private Limited (in its early stage) and Flipkart India Private Limited.
   Key Features:
   • Minimum of two and maximum of 200 members.
   • Minimum paid-up capital requirement abolished under the Companies Act, 2013.
   • Restriction on invitation to the public for share subscription.
2. Public Limited Company: A public company can offer its shares to the public and has no restriction on the number of members. It must have at least seven members and three directors. Public companies are typically larger and more regulated. Examples include State Bank of India (SBI) and Reliance Industries Limited.
   Key Features:
   • No upper limit on the number of shareholders.
   • Shares are freely transferable.
   • Subject to strict disclosure and compliance norms.
3. One Person Company (OPC): Introduced under the Companies Act, 2013, an OPC allows a single individual to form a company with limited liability. This structure benefits small entrepreneurs who wish to operate with the flexibility of a sole proprietorship but with the legal protection of a company.
   Key Features:
   • Single member and one nominee.
   • Treated as a separate legal entity.
   • Exempted from many regulatory requirements applicable to private or public companies.

Classification Based on Control or Ownership

The ownership pattern determines whether a company is under government or private control.

1. Government Company: A company in which 51% or more of the paid-up share capital is held by the Central Government, State Government, or both jointly is termed a government company. Examples include Oil and Natural Gas Corporation (ONGC) and Bharat Heavy Electricals Limited (BHEL).
   Government companies are subject to audit by the Comptroller and Auditor General (CAG) and are established to achieve strategic or social objectives.
2. Private Sector Company: These are owned, managed, and controlled by private individuals or corporate entities. They operate for profit and are not under government ownership. Examples include Infosys Limited and Mahindra & Mahindra Limited.
3. Public Sector Company: These are companies where the majority stake lies with the government. They often focus on infrastructure, defence, and essential services.
4. Foreign Company: According to Section 2(42) of the Companies Act, 2013, a foreign company is one incorporated outside India but having a place of business in India through a branch office, liaison office, or subsidiary. Examples include Google India Private Limited and Nestlé India Limited.

Classification Based on Access to Capital

1. Listed Company: A listed company has its shares listed on a recognised stock exchange, allowing trading by the general public. Such companies must adhere to the regulatory requirements of the Securities and Exchange Board of India (SEBI). Example: Tata Steel Limited.
2. Unlisted Company: These companies do not list their shares on any stock exchange. Ownership remains with private individuals, families, or institutional investors. Example: Tata Sons Private Limited.

Classification Based on Purpose or Function

1. Profit-Making Companies: Formed with the primary objective of earning profits for distribution among shareholders. These include most private and public limited companies.
2. Non-Profit Companies (Section 8 Companies): Registered under Section 8 of the Companies Act, 2013, these companies are formed for charitable, educational, religious, or social purposes. They cannot distribute profits to members and must reinvest surplus in furthering their objectives. Examples include Infosys Foundation and CRY (Child Rights and You).

Other Special Categories of Companies

• Holding Company: A company that controls one or more subsidiary companies by holding the majority of their shares or controlling their management. Example: Tata Sons Limited is the holding company of the Tata Group.
• Subsidiary Company: A company controlled by another (holding) company through majority shareholding. Example: Tata Motors Limited is a subsidiary of Tata Sons Limited.
• Joint Venture Company: Formed through collaboration between two or more entities for a specific project or purpose, sharing profits and management. Example: Maruti Suzuki India Limited.
• Associate Company: One in which another company holds significant influence, usually 20% or more of the voting power, but not enough to control it completely.