Types of companies based on the number of members

Private Company

A private company, as per Section 2(68)¹, is one with a minimum prescribed paid-up capital that restricts share transfers, limits members to 200, and prohibits public invitations for securities. A Private Company is a company that:

• Has a minimum paid-up share capital as may be prescribed.
• Restricts the right to transfer its shares.
• Limits the number of its members to 200 (excluding current/former employees who are shareholders).
• Prohibits public invitation to subscribe to its securities.

Key Features:

• Suitable for closely-held businesses, startups, and family-owned firms.
• Requires at least 2 and up to 200 members.
• Enjoys less regulatory burden than public companies.

Example: Flipkart Internet Pvt. Ltd., Infosys BPM Pvt. Ltd.
 

Public Company

A public company is defined under Section 2(71)² as one that is not a private company and has the authority to invite the public to subscribe to its securities. A Public Company is a company that:

• Is not a private company.
• Has a minimum paid-up share capital as may be prescribed.
• Can invite the public to subscribe to its shares, debentures, or other securities.
• Can be listed on a stock exchange, but it is not mandatory.

Key Features:

• No limit on the maximum number of members.
• Can raise capital from the general public.
• Subject to more stringent regulations compared to private companies.

Example: Reliance Industries Ltd., Infosys Ltd.

One Person Company (OPC)

Section 2(62)³ describes an OPC as a company with only one member, offering limited liability to individual entrepreneurs. An OPC is a company:

• That has only one member.
• Introduced for individual entrepreneurs to operate as a company.
• Provides the benefit of limited liability and separate legal entity, similar to other companies.

 

Key Features:

• Must be incorporated as a private company.
• The sole member must be an Indian citizen and resident (though rules have been relaxed in recent years).
• Requires nomination of another person in the event of death/incapacity of the sole member.

Example: A freelance consultant or small business owner registering a company in their own name.
 

Types of companies based on liability

Company Limited by Guarantee

A company limited by guarantee, under Section 2(21)⁴, limits members' liability to amounts they agree to contribute in case of winding up.
(Companies Act, 2013, Section 2(62)) A Company Limited by Guarantee is one in which:

• Members agree to contribute a specific amount to the company's assets in case of winding up.
• This liability is not related to shareholding.
• Commonly used for non-profit or charitable organizations.

Key Features:

• Does not issue shares (usually).
• Liability is limited to the amount guaranteed by each member.
• Often formed as Section 8 companies (for charitable purposes).

Example: If a member guarantees ₹1,000, they are liable to pay only that amount if the company is wound up and debts remain unpaid.
 

Company Limited by Shares

According to Section 2(22)⁵, this type of company limits liability to the unpaid portion of the shares held by members. A Company Limited by Shares is one in which:

• The liability of members is limited to the unpaid amount on the shares they hold.
• If the shares are fully paid, the shareholder has no further liability.
• This is the most common type of company structure in India.

Key Features:

• Liability arises only if shares are not fully paid.
• Commonly used by both private and public companies.
• Encourages investment due to limited risk.

Example: If a shareholder holds 100 shares of ₹10 each and has paid ₹8 per share, they are liable to pay the remaining ₹2 per share if required. (Companies Act, 2013, Section 2(21))
(Companies Act, 2013, Section 2(22))
 

Unlimited Company

An unlimited company, under Section 2(92)⁶, places no cap on member liability, making them personally accountable for debts. An Unlimited Company is one in which:

• The liability of members is unlimited, similar to partners in a partnership.
• Members are personally responsible for all debts and liabilities of the company if the assets are insufficient.

Key Features:

• Rarely used due to high financial risk to members.
• Members' personal assets may be used to repay debts.
• Still enjoys separate legal entity status.

Example: If the company's liabilities exceed its assets, members must contribute without any cap to cover the shortfall.

Other types of companies in India
 

Section 8 Company

Formed for charitable or not-for-profit objectives, Section 8⁷ companies reinvest profits into their stated purposes and do not distribute dividends. A Section 8 Company is formed:

• For the purpose of promoting commerce, art, science, education, religion, charity, social welfare, environment protection, etc.
• It intends to apply its profits or income to promote its objectives, and not to distribute dividends.

(Companies Act, 2013, Section 2(92))
(Companies Act, 2013, Section 2(8))

Key Features:

• Operates as a non-profit organization.
• Requires approval from the Central Government to be registered.
• Enjoys tax exemptions and other regulatory benefits.

Example: NGOs, research foundations, and social welfare societies registered as companies.

Government Company

Under Section 2(45)⁸, a government company has at least 51% of its paid-up share capital held by the government. A Government Company is one in which:

• At least 51% of the paid-up share capital is held by the Central Government, a State Government, or jointly by both.
• It also includes a subsidiary of such a government company.

Key Features:

• Operates under the Companies Act, but may be subject to additional government oversight.
• Can be public or private in nature.
• Used for strategic sectors such as energy, railways, defense, etc.

Example: Bharat Heavy Electricals Ltd. (BHEL), National Thermal Power Corporation (NTPC).

Foreign Company

A foreign company, as per Section 2(42), is incorporated outside India but has business operations within the country.
(Companies Act, 2013, Section 2(45))
(Companies Act, 2013, Section 2(42)) A Foreign Company is:

• A company that is incorporated outside India but:
  • Has a place of business in India (through branch, agency, etc.), and
  • Conducts business activity within India.

Key Features:

• Must comply with Chapter XXII of the Companies Act, 2013.
• Required to file necessary documents with the Registrar of Companies (ROC).
• May be subject to additional regulations under FEMA, SEBI, etc.

Example: Google India Pvt. Ltd., Microsoft Corporation (India).

Holding and Subsidiary Company

A holding company controls one or more subsidiaries, either through shareholding or control over the board, as defined in Sections 2(46) and 2(87). A Holding Company is:

• A company that has control over one or more companies, known as subsidiaries.
• Control may be:
  • Ownership of more than 50% voting rights, or
  • Control over the board of directors.

Key Features:

• Used to structure corporate groups.
• Can be an Indian or foreign company.
• May or may not be involved in the business operations of its subsidiaries.

Example: Tata Sons Pvt. Ltd. (holding company for several Tata Group companies). A Subsidiary Company is:

• Controlled by another company (the holding company).
• Control can be:
  • Through shareholding (more than 50%), or
  • Control over the composition of its board.

Key Features:

• The holding company can direct the policies of the subsidiary.
• Still considered a separate legal entity.

Example: Jaguar Land Rover is a subsidiary of Tata Motors Ltd.
Conclusion
The Companies Act, 2013, provides a comprehensive legal framework for the formation, operation, and classification of companies in India. It categorizes companies based on various parameters such as membership, liability, ownership, control, and purpose, ensuring that the corporate structure remains adaptable to different business models and societal needs.

Whether it is a Private Company suited for close-knit ownership, a Public Company designed for large-scale capital generation, or a One Person Company empowering individual entrepreneurs, the Act offers tailored options to suit diverse requirements. Further classifications like Section 8 Companies for non-profit objectives, Government Companies for state participation, and Foreign Companies for cross-border business ensure inclusive governance.

By clearly defining the nature and responsibilities of each company type, the Act promotes transparency, accountability, and efficiency, thereby facilitating smooth and lawful corporate operations in India's dynamic economic environment.

References:

• https://thelegallock.com/types-of-companies-under-the-companies-act-2013/
• https://lawgicalshots.com/a-look-at-types-of-companies-under-companies-act-2013/
• https://www.setindiabiz.com/blog/types-and-classification-of-companies
• https://legalwindow.in/types-of-companies-under-companies-act/
• https://www.articlecg.com/2022/05/what--company.html
• https://thelegalquorum.com/different-types-of-companies-under-the-companies-act-2013/
• https://www.writinglaw.com/types-of-companies/
• https://lawbhoomi.com/company-limited-by-shares-and-company-limited-by-guarantee/
• https://edurev.in/question/2875723/Minimum-number-of-members-in-case-of-private-company-isa-1b-2c-3d-5Correct-answer-is-option--B---Can
• https://www.oliverelliot.co.uk/insolvency-guides-and-information/are-shareholders-liable-for-company-debts/