When navigating the business landscape in India, it’s essential to understand the various types of business entities available. The Companies Act, 2013 offers a comprehensive framework for classifying the types of companies in India based on parameters such as membership, liability, size, control, and listing status. This guide will help you explore the different types of business structures, their distinct features, and the regulatory requirements associated with each type of company in India.
1. Types of Companies Under the Companies Act, 2013
One Person Company (OPC)
Private Limited Company
A Private Limited Company is designed for businesses that wish to remain closely held. It requires a minimum of two members and allows a maximum of 200 members. Share transfers are restricted, ensuring control remains within a limited group. The company must have at least two directors, with a maximum of 15. This type of company in India is ideal for businesses looking for a closely controlled structure.
Public Limited Company
A Public Limited Company allows for public shareholding. It must have at least seven members and can have an unlimited number of shareholders. This type of company in India must have at least three directors and can have up to 15. Public companies are required to adhere to stringent regulatory guidelines and are subject to the oversight of the Securities and Exchange Board of India (SEBI).
Section 8 Company (NGO)
Section 8 Companies are established for charitable or non-profit purposes. They aim to promote various causes such as education, social welfare, and environmental protection. These companies are prohibited from distributing profits to members and are required to apply their profits toward their charitable objectives. Understanding this type of company in India is essential for those involved in non-profit activities.
2. Types of Companies Based on Size
Micro Companies
Micro Companies are characterized by their modest investment and turnover. They have an investment in plant and machinery not exceeding Rs.1 crore and an annual turnover not exceeding Rs.5 crore. This classification of the types of company in India helps small-scale entrepreneurs manage their businesses efficiently.
Small Companies
Small Companies are defined by their investment and turnover thresholds. They have an investment in plant and machinery not exceeding Rs.10 crore and an annual turnover not exceeding Rs.50 crore. Additionally, a small company under the Companies Act, 2013, must have a paid-up share capital of below Rs.4 crore and an annual turnover of below Rs.40 crore. Recognizing these types of company in India aids in accessing relevant regulatory benefits.
Medium Companies
Medium Companies are larger than small companies but not as large as public companies. They have an investment in plant and machinery not exceeding Rs.50 crore and an annual turnover not exceeding Rs.250 crore. Identifying this type of company in India is important for medium-sized businesses planning their growth.
3. Types of Companies Based on Liability
Limited by Shares
In a company limited by shares, members’ liability is restricted to the amount unpaid on their shares. This is the most common type of company in India and is popular among businesses seeking to limit financial risk.
Limited by Guarantee
Companies limited by guarantee have members whose liability is restricted to a predetermined amount they agree to contribute in the event of liquidation. These are often used for non-profit organizations. Understanding this type of company in India is crucial for non-profit ventures.
Unlimited Company
An unlimited company does not limit the liability of its members. If the company faces financial difficulties, members may be required to cover the company’s debts, extending to their assets. This type of company in India is less common but important to recognize.
4. Types of Companies Based on Control
Holding Company
A Holding Company controls another company (subsidiary) by owning a majority of its voting shares. While it influences the subsidiary’s policies and decisions, it typically does not engage in day-to-day operations. This classification of the types of company in India is essential for understanding corporate structures.
Subsidiary Company
A Subsidiary Company is controlled by a holding company, which may own a majority of its shares. When a holding company owns 100% of the subsidiary’s shares, it is known as a Wholly Owned Subsidiary (WOS). Recognizing these types of company in India helps in managing corporate groups effectively.
5. Types of Companies Based on Listing Status
Listed Company
Listed Companies are traded on stock exchanges, allowing the public to buy and sell their shares. They must comply with SEBI regulations and often go through an Initial Public Offer (IPO) or Further Public Offer (FPO) to list their shares. This type of company in India has specific regulatory requirements.
Unlisted Company
Unlisted Companies are not traded on stock exchanges and do not have publicly available shares. They often raise capital through private placements or funding from financial institutions and must convert to a public company if they wish to be listed. Understanding this type of company in India is key for businesses looking to expand their funding options.
Conclusion
Navigating the various types of companies in India is crucial for choosing the right structure for your business. Whether you opt for a Private Limited Company or explore other types like One Person Companies and Public Limited Companies, understanding these classifications will guide your decisions.
