In India, the Companies Act, 2013 is the key law that governs how companies are formed, managed, and regulated. A company is a legal entity that is created when people come together for a specific purpose, such as running a business. The act outlines various types of companies, each with different rules for formation and operation.
This article will help you understand the different types of companies under the Companies Act, 2013, in simple terms.
What is a Company?
A company is essentially an organization where individuals pool their resources (like money or skills) for a shared purpose. A company can enter into contracts, own property, and take legal actions, just like an individual. In India, the Companies Act, 2013 defines and regulates how these companies are formed and structured.
Types of Companies Under the Companies Act, 2013
The Companies Act, 2013 divides companies into several categories, based on factors like the number of members, liability, and the way they are formed. Broadly, companies can be classified into three main types:
- Private Companies
- Public Companies
- One Person Companies (OPC)
Each of these types has specific rules for formation and operation.
Private Company
A private company is a type of company where:
- There are at least two members to start the company.
- The company restricts the transfer of shares (meaning only a few people can buy and sell shares).
- The total number of members cannot exceed 200 (excluding certain employees).
- The company cannot invite the public to buy its shares.
Private companies usually have a smaller number of people involved in decision-making and management. Examples of private companies include Flipkart India Private Limited and Ola Automatic Engine Private Limited.
Small Private Companies
Some private companies are classified as “small companies” based on their size. A small private company has:
- A paid-up capital of up to ₹4 crore.
- A turnover of up to ₹40 crore.
However, companies like holding companies, subsidiaries, and nonprofit companies are not considered small, even if they meet the size criteria.
Public Company
A public company is one that:
- Can have an unlimited number of members.
- Can freely transfer shares.
- Can invite the public to buy its shares and may even list its shares on the stock exchange.
To form a public company, you need at least seven members. Public companies are typically larger organizations, and some of them are listed on stock exchanges. For example, Snapdeal Limited and Procter & Gamble Health Limited are public companies.
One Person Company (OPC)
An One Person Company (OPC) is designed for individual entrepreneurs who want to run a company on their own.
In an OPC:
- Only one person is required to form the company.
- This person is both the owner and the sole decision-maker.
The One Person Company structure is a great option for small business owners who want the benefits of being a separate legal entity without the complexity of managing a large company. Examples include Pharma First (OPC) Private Limited and Solar Nest (OPC) Private Limited.
Other Types of Companies in India
In addition to Private Companies, Public Companies, and One Person Companies, the Companies Act, 2013 also recognizes several other types of companies, which are based on their function or structure:
Nidhi Companies
A Nidhi Company is a special type of mutual benefit society. Its main goal is to promote savings and provide loans to its members. These companies are primarily focused on financial transactions within the group, like lending money secured against property or jewelry.
Section 8 Companies
Section 8 companies are nonprofit organizations created for social, educational, or charitable purposes. These companies:
- Do not pay dividends to their members.
- Reinvest any profits into the organization’s activities.
Such companies could focus on areas like education, healthcare, or community development.
Producer Companies
A Producer Company focuses on the production and marketing of agricultural goods. These companies are usually formed by farmers or other primary producers who work together to enhance their income. The main goal of these companies is to help producers by improving efficiency and sharing resources.
Dormant Companies
A dormant company is one that is legally formed but not actively carrying out business. These companies:
- Might have been set up for a future project.
- Hold assets like intellectual property but have no significant financial transactions.
A dormant company can apply for official dormant status with the Registrar of Companies.
Government Companies
A government company is one where the Central Government or State Governments own at least 51% of the share capital. These companies are set up to manage government functions or services, and may include subsidiaries of government-owned companies.
Holding and Subsidiary Companies
- A holding company is one that has control over one or more subsidiary companies.
- A subsidiary company is controlled by the holding company, either by its power to influence the Board of Directors or by owning more than half of the voting shares.
This structure helps large organizations manage multiple smaller companies.
Foreign Companies
A foreign company is one that is incorporated outside of India but operates within India. These companies must follow the provisions of the Companies Act, 2013 while conducting business in India.
Conclusion
The Companies Act, 2013 in India provides a clear and structured way to form and manage different types of companies. Whether you’re starting a small business with just one person or planning to launch a large public company, there is a suitable framework for your needs.
Understanding the various types of companies, like private companies, public companies, and one person companies, is essential for anyone looking to start a business in India.
By knowing which type of company best suits your goals and resources, you can make more informed decisions when setting up your business, ensuring that you comply with the legal requirements while also achieving your business objectives.
