The Indian company laws have a rich history dating back to the colonial era. The establishment of the English East India Company had marked the emergence of modern business corporations in India. For nearly 2 centuries, there was no specific body of law regulating the establishment of companies. Since then, here have been frequent legislative developments in India and the Companies Act 1956, a significant piece of corporate legislation, was enacted. However, the Act of 1956 has been replaced by the present Companies Act of 2013. Nevertheless, some provisions of the Act of 1956 can be still found in the present Act of 2013 in some form or the other. This article discusses about the various types of companies that fall under the preview of the Companies Act, 2013.
Meaning of ‘Company’ under the Act:
A company is an association of persons which is formed to achieve common objects. The word ‘Company’ has been derived from the Latin word ‘com’ and ‘panis’. A company is where likeminded people come together to carry on a business.
As per Section 2 (20) of the Act, a “Company” means a company incorporated under the Companies Act, 2013 or under any previous company law.
A company being the creation of law, is an artificial person having legal and distinct status from that of its members.
Types of Companies under the Act:
The basic types of companies that can be registered under the Act are:
● Public Company
● Private Company
● One Person Company
A company to be called a public company requires a minimum of 7 members while, to be called a private company it requires a minimum of 2 members. One person company shall also be incorporated as a private company only having 1 member.
● Public Company:
According to Sec 2(71), a company is a public company that is not a private company and has a minimum paid-up share capital.
A public company is an association having 7 members or more and is registered under the Act. Any person wishing to acquire shares or debentures in a public company can do so by paying the price. The buying and selling of shares and debentures are not restricted. The Act in Sec 58(2) provides that the shares and debentures of the public company shall be freely transferable.
A public company can be converted into a private company by passing a special resolution. Restrictions may be imposed in its articles as specified in Sec 2(68). However, the same must be approved by the Tribunal.
● Private Company:
According to Sec 2(68), a private company is a company having a minimum paid-up share capital as may be prescribed by the Act and restricts the right to transfer the shares; limits the number of members to 200 and prohibits the invitation to public to subscribe for the securities of the company.
Although the number of members is limited to 200, debentures can be issued to any number of persons by a private company. However, the invitation to subscribe for debentures is prohibited.
These restrictions, limitations and prohibitions must be specifically provided in the Articles of the company. If at any time a private company alters its Articles in a manner where such restrictions, limitations and prohibitions are excluded, or it fails to comply with the provisions of sec 2(68), then the company shall cease to be a private company.
A private company can be converted into a public company by passing a special resolution for deleting the requirements of sec 2(68).
However, with the conversion of a private company into a public company or vice versa, only its nature is changed. The identity of the company remains unchanged.
● Small Company:
Section 2(85) provides for small companies under the Act of 2013. This new form of a private company has been classified as a small company based on its paid-up capital and turnover. A company will be said to be a small company if its paid-up capital share does not exceed Rs. 50 Lacs with a maximum ceiling of Rs. 10 Crores; or if its turnover does not exceed Rs. 2 Crores with a maximum ceiling of Rs. 100 Crores.
However, a holding or a subsidiary company; a company registered u/s 8 or a company governed by a special Act shall not be considered as a small company.
● One Person Company:
Under the Act of 2013, a single person can constitute a company. One person company is a kind of private company having only one member. With the introduction of the concept of one person company, small businesses can now be corporatized. In OPC, the legal, as well as the financial liability, is limited to the company alone. The conversion of OPC into a company u/s 8 of the Act has been barred by the Companies (Incorporation) Rules, 2014.
These basic types of companies can further be classified into the following heads:
- On the basis of Incorporation
- On the basis of Liability
- Other forms of Companies
- On the basis of Incorporation
1.1 Statutory Companies:-
Statutory companies are those companies that have been constituted by an Act of Parliament or State Legislature. The constitution, powers and scope of the activities of such companies or corporations are provided under a special enactment which can be altered only and only by a legislative amendment. The statutory companies/ corporations are governed by the Special Act itself. Nevertheless, the Companies Act 2013 is also applicable to statutory corporations to some extent. In case of inconsistencies between the provisions of the Special Act and the Companies Act 2013, the provisions of the Special Act shall prevail.
For example: The Reserve Bank of India is a statutory company constituted by a special Act of Parliament.
1.2 Registered Companies: –
These are the companies that have been incorporated under the Act of 2013 or under any previous company law and registered with the Registrar of the Companies.
- On the basis of liability
A company incorporated under the Companies Act 2013 can either be a limited company or an unlimited company.
2.1. Limited Company:
A company limited by either shares or by guarantee is termed as a limited company. The liability of every member herein is limited to the extent of the value of the shares that are held by them or to the extent of such amount which a member guarantees to contribute in the event of winding up of such company.
2.1.1. Company Limited by Shares:
In a company that is limited by shares, the liability of the members of such a company is limited to the nominal value of the shares held by them. No member can be called upon to pay anything more than the value of shares held by him. The company can call upon the members to pay the unpaid portion of their shares at any time irrespective of whether the company is a going concern or is being wound up.
2.1.2. Company Limited by Guarantee:
A company wherein the members undertake to contribute to the assets of the company in the event of winding up, such a company is a company limited by guarantee. Unlike in a company limited by shares, the liability of members to contribute the guaranteed amount arises only when the company is winding up and not when it is a going concern. That is to say that the members are called upon to pay the guaranteed amount towards the assets of the company when the company has gone under liquidation.
2.2 Unlimited Company:
A company having no limit on the liability of its members is termed as an unlimited company. The liability of members herein may stretch to their personal assets in the event of winding up of the company in order to contribute to the assets of the company. The members, however, are not directly liable to the creditors of the company. Their liability is only towards the company. In the event of winding up, in order to pay off the debts of the company, the Liquidator may ask the members to contribute to the assets of the company.
- Other Forms of Companies
3.1. Government Company:
A company in which 51% or more of the paid-up share capital is held by either the Central Government or the State Government(s) or partly by Central Government and partly by the State Government(s), is a government company u/s 2 (45) of the Act of 2013.
It is to be noted that any subsidiary of a government company shall also fall under the classification of a government company. However, a government company is neither a Government establishment nor it is a Government Department irrespective of the fact that major paid-up share capital is held by the Government.
The companies incorporated under the Companies Act have a corporate legal personality that is distinct from that of the Government of India. The Government only owns the share capital, the rest of other things like the land and buildings are owned by the company itself.
A government company may also wind up like other companies under the Act.
3.2. Foreign Company:
According to Section 2(42) of the Act, a ‘foreign company’ is any company or body corporate that is incorporated outside India. However, such a company must either have a place of business in India by itself or through its agent in a physical or electronic manner or it must conduct any business activity in India in any other manner.
A foreign company is required to register itself with the Registrar of Companies within a stipulated time of 30days from its establishment of business in India. Regardless of its registration, if such a foreign company ceases to carry on its business in India, it shall be wound up as if it were an unregistered company under the Act.
3.3. Holding, Subsidiary and Associate Company:
The companies can be classified as holding, subsidiary and associate companies on the basis of their control.
Holding Company u/s 2(46) of the Act means a company or a body corporate that has subsidiary companies. A holding company may have one or more other companies that are its subsidiaries. A holding company is basically a parent entity that owns a controlling interest in other companies known as its subsidiaries.
According to section 2(87) of the Act, a company would be a subsidiary company if the holding company has a control over the composition of the Board of Directors or owns and controls more than half of the share capital of such a company.
A subsidiary company cannot hold shares of its holding company. If a holding company makes any allotment or transfer of shares to any of its subsidiary companies, the same shall be void ab initio. Nevertheless, there are certain exceptions to this rule where a subsidiary company can hold the shares of its holding company.
An Associate company under section 2(6) of the Act, is a company in which other company has a significant influence. It is different from subsidiary company. Herein, the company has control on a minimum of 20% of share capital, and business decisions of such associate company under agreement. The parent company owns only a small stake in an associate company.
3.4. Dormant Company:
Dormant companies are a new set of companies that have been recognized by the Companies Act 2013.
A dormant company means an inactive or an inoperative company.
A company can be formed for future projects without having any significant accounting transactions. The only transactions that take place are for maintaining and running the company so as to comply with the statutory requirements. Such companies can apply to the Registrar of Companies to obtain the status of a dormant company under the Act.
3.5. Producer Company:
Producer companies have been provided under the Companies Act 1956. As per Sec 581A(1), a producer company is a body corporate and has its objects and activities as specified in Sec 581B.
However, as per Sec 465(1) of the Act of 2013, the Companies Act, 1956 stands repealed. Nevertheless, the proviso attached to Sec 465(1) states that the provisions of Part IX-A of the Companies Act 1956 shall be applicable to the Producer Companies in such a manner as if the Companies Act 1956 has not been repealed. Thus, the producer companies are governed under the Companies Act 1956.
The Companies Act, 2013 provides for different types of companies that can be registered under the Act. A company can be either a public company or a private company either limited by shares or limited by guarantee or have no limit of liability on its members. Under the Act of 2013, even a single person can constitute a company. Such a company shall be called a one-person company and would fall in the category of a private company.
- Bajaj Auto Ltd. Vs. Western Maharashtra Development Corporation Ltd., (2015) Bom.
- All India Reporter Ltd. Vs. Ramchandra, AIR 1961 Bom. 292; ICR 1961 Bom. 257
- Section 3(1)(c) of Companies Act 2013
- Section 3(2) of Companies Act 2013
- Hindustan Steel Works Construction Co. Ltd. Vs. State of Kerala (1998) 2 CLJ 383
- Andhra Pradesh Road Transport Corporation Vs. ITO, AIR 1964 SC 1486