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Types of Companies in India

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Synopsis:

In India, we follow various criteria to classify companies. For example, the Companies Act of 2013 categorises companies as follows: one-person company, private limited company, public limited company, and section 8 company (NGO).
 

However, the MSME Act classifies companies in this manner: micro companies, small companies, and medium companies. Then, we have companies based on control, including holding and subsidiary companies. While setting up a company, the promoters should be crystal clear about their objective. For example, if they want to promote a social cause, they should set up a company limited by guarantee or a section 8 company under the Companies Act.

There are many types of companies in India. Moreover, there are several criteria to classify companies. For example, under the Companies Act of 2013, we have these categories: one-person company, private limited company, public limited company, and section 8 company (NGO). However, under the MSME Act, we have these categories of companies: micro companies, small companies, and medium companies. Read this blog, as it explains why we have various types of companies in India and how such companies are different from each other.

List of Different Types of Companies in India

The following table provides the different types of companies in India and their criteria:

Criteria

Types of companies

According to size

Micro Companies, Small Companies, and Medium Companies

According to liability

Companies limited by shares, Companies limited by guarantee, and Unlimited companies

According to the Companies Act of 2013     

One-person companies (OPC), Private limited companies, Public limited companies, and Section 8 companies (NGOs)

According to control

Holding companies and Subsidiary companies

According to listing

Listed companies and Unlisted companies     

Types of Companies Based on Liability

There are different types of companies in India based on liability, which are explained below:

  • Company limited by shares: In this type of company, the liability of shareholders is limited to the extent of their investment in the company. If such a company goes bankrupt, its shareholders are liable only to the extent of their investment in the company. Their personal assets cannot be attached to pay any dues of the company. Hence, such companies are known as limited by shares because the liability of their shareholders is limited to an extent.

  • Company limited by guarantee: Such companies are typically non-governmental organisations (NGOs), charities, or enterprises involved in social work. These companies do not have shareholders. However, they have members that provide a statement of guarantee in which they say that they will contribute towards the assets of the company if it winds up. These contributions are required to pay the debt, expenses of winding up, and other obligations of such companies.

  • Unlimited company: The members or shareholders of such companies have unlimited liability. If an unlimited company is unable to pay its debt, then the assets and private wealth of its shareholders can be attached to pay such debts. Hence, their liability is unlimited.

Types of Companies Based on Size

As per the MSME Act in India, companies can be divided based on their size as follows:

  • Micro company: A micro company is an enterprise that has invested up to Rs. 1 crore in plant and machinery and its annual sales are not more than Rs. 5 crores.

  • Small company: A small company is an enterprise that has invested up to Rs. 10 crores in plant and machinery and its annual sales are not more than Rs. 50 crores. However, under the Companies Act of 2013, if a company has a paid-up share capital of less than Rs. 4 crores and annual sales of less than Rs. 40 crores, it is deemed as a small company.

  • Medium company: A medium company is an enterprise that has invested up to Rs. 50 crores in plant and machinery and its annual sales are not more than Rs. 250 crores. 

Based on these classifications under the MSME Act, subsidies are provided by the government to these companies.

Types of Companies under the Companies Act, 2013

The various types of companies under the Companies Act of 2013 are explained below:

  • One-person company (OPC): An OPC is a company with just one member, who is also its shareholder and director. This structure is good for those businesspersons who want to go solo and do not want to have a partner.

  • Private limited company: Such companies cannot have more than 200 members and not less than two members. This structure is good for those businesses that want to be registered as private entities. Meanwhile, the members of such companies are not allowed to transfer their shares. A private limited company should have at least two directors and a maximum of 15 directors.

  • Public limited company: In a public limited company, the general public can hold equity and other shares. There is no limit on the number of maximum shareholders such companies can have. However, to create a public company, a minimum of seven members are required. Such companies must have at least three directors and can have a maximum of 15 directors.

  • Section 8 company (NGO): Such companies can be registered by an association of persons under Section 8 of the Companies Act. Section 8 companies are established for charitable purposes for causes related to art, education, research, science, religion, social welfare, etc.

Types of Companies Based on Control

Under this classification, companies are divided based on who owns or controls them:

  • Holding company: When a company has a majority of voting powers of another company, it is called that company's holding company. The company in which it has voting powers is called its subsidiary. Such a holding company is also known as a parent company, as it controls the policies, decision-making, and assets of its subsidiary. That said, a holding company is not involved in the day-to-day operations of its subsidiary company.

  • Subsidiary company: When a company is either entirely or partially owned by another company, it is called that company's subsidiary. And, that company is called its holding company. A holding company decides who will be the board of directors in its subsidiary, as it typically has more than 50% voting rights in its subsidiary. However, when a holding company has 100% voting rights, its subsidiary is called a “wholly owned subsidiary.”

Types of Companies Based on Listing

The various types of companies in India based on listing are as follows:

  • Listed companies: Such companies are registered on stock exchanges, either in India or abroad. As the shares of such companies are available for trade on stock exchanges, members of the general public can buy and sell them. In India, to be listed, a company must adhere to the guidelines set by the Securities Exchange Board of India (SEBI). When a company wants to list its shares on a stock exchange, it issues a prospectus to the general public, which has information about its business, financials, and prospects. Based on the prospectus, people decide whether to invest in it or not. To list on an exchange, a company has to issue an initial public offer (IPO). If a company is already listed and still wants to raise more capital, it can issue a further public offer (FPO).

Unlisted companies: When a company is not listed on a stock exchange, it is known as an unlisted company. The owners of such companies raise capital through friends, relatives, or people in their network.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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Frequently Asked Questions

What are the main types of companies that can be registered in India? How do I choose the right type of company for my business in India?

Answer Field

The various types of companies in India that can be registered include micro companies, small companies, medium companies, private limited companies, public limited companies, holding companies, subsidiary companies, etc. The right type of company for your business depends upon the objective of setting that business.

What are the tax implications of different company types in India?

Answer Field

The tax rates vary based on the type of company. For example, private and public limited domestic companies have to pay a 25% tax if their sales in the previous financial year were up to Rs. 400 crore. However, if their turnover was more than Rs 400 crore, they have to pay a 30% tax.

Can a foreign company operate in India? What are the options?

Answer Field

Yes, a foreign company can operate in India through various options. For example, it can set up a wholly-owned subsidiary here. It can enter into a joint-venture with an Indian partner. It can even set up a branch office or a liaison office in India.

What are the advantages and disadvantages of a partnership firm in India?

Answer Field

A partnership firm is easy to start. Besides, partners can take decisions very fast. However, partners in such a firm have unlimited liability. As a partnership firm is easy to start and is not subject to many rules and regulations, people tend to trust such firms lesser.

What is the difference between a Private Limited Company and a Public Limited Company in India?

Answer Field

Public limited companies are listed on stock exchanges in India. Hence, the general public can trade in their shares. However, private limited companies are not listed and therefore the general public cannot trade in their shares.

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