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Understanding the classification of companies in India is essential for entrepreneurs, investors, and professionals who are either starting a business or managing corporate compliance. The Indian Companies Act, 2013 provides a comprehensive framework to classify companies based on different parameters such as liability, ownership, size, and control. This classification helps in determining the legal structure, obligations, and benefits for each company type.
Types of Companies Based on Incorporation
1. Statutory Companies
These are companies formed by a special Act passed in the Parliament or State Legislature. Examples include the Reserve Bank of India (RBI) and Life Insurance Corporation (LIC). These companies operate under the provisions of their respective Acts and not the Companies Act, 2013.
2. Registered Companies
These companies are formed under the Companies Act, 2013 or any earlier laws. They come into existence after being registered with the Registrar of Companies (RoC). Registered companies are further divided based on liability and ownership.
Classification Based on Liability
1. Company Limited by Shares
In this type of company, the liability of members is limited to the unpaid amount on their shares. It is the most common company form in India.
2. Company Limited by Guarantee
Here, the liability of members is limited to the amount they agree to contribute to the company’s assets in the event of winding up. These companies are generally non-profit in nature.
3. Unlimited Liability Company
The members of these companies have unlimited personal liability for the debts of the company. This type is rare in India due to high financial risk.
Classification Based on Number of Members
1. One Person Company (OPC)
Introduced under the Companies Act, 2013, an OPC allows a single individual to operate a company. It is ideal for solo entrepreneurs who want to enjoy limited liability without involving partners.
2. Private Limited Company
A private limited company can have a minimum of 2 and a maximum of 200 members. It restricts the transfer of shares and cannot invite the public to subscribe to shares.
3. Public Limited Company
A public company must have at least 7 members and can offer shares to the public. It is listed on stock exchanges and is subject to more compliance norms compared to private companies.
Classification Based on Control
1. Holding and Subsidiary Companies
A holding company controls one or more subsidiary companies. Control is determined through ownership of more than 50% of the total share capital or control over the board of directors.
2. Associate Company
An associate company has significant influence (usually at least 20% of total share capital) but is neither a subsidiary nor a joint venture.
Conclusion
The classification of companies in India plays a pivotal role in determining the legal and operational structure of a business. Entrepreneurs should carefully assess these categories before choosing the most suitable type for their venture. Each classification brings distinct advantages and regulatory obligations that influence how the company operates in the Indian market.
