CLASSIFICATION OF COMPANIES WITH EXAMPLE

Meaning and Definition of Company

“By a company is meant an association of many persons who
contribute money or money’s worth to a common stock and employ
it in some trade or business, and who share the profit and loss (as
the case may be) arising therefrom.
According to Sections 3(1)(i) and 3(1)(ii) of the Indian Companies Act,
1956, “Company means a company formed and registered under this
Act or an existing company, ‘existing company’ means a company
formed and registered under any of the pervious company laws.”
On the basis of above definition it can be said that ‘company’ is a
lawful artificial person which is incorporated under the Companies
Act with a specific objective, with its members having a limited
liability. The identity of the company is different and separate from
that of its members.

 Classification of Companies -
1. On the Basis of Incorporation
 Chartered Companies
 Statutory Companies
 Registered Companies

2. On the Basis of Liability

 Limited Liability Companies
 Unlimited Liability Companies
 3. On the Basis of Transferability of Shares
 Private Companies
 Public Companies

4. On the Basis of Ownership

 Government Companies
 Holding Companies
 Subsidiary Companies

5. On the Basis of Nationality

 Inland Companies
 Foreign Companies

 Classification on the Basis of Incorporation

 Chartered Companies: This is the earliest form of
incorporation of companies. Such companies were formed at
the instance of some select authorities of state with the
purpose of conducting the affairs of the state, like looking after
the administration of some region or augmenting the military
power of the state. These companies were formed by a royal
charter, i.e., at the express orders of the King and Queen, and
were also called chartered companies.

For example - Such companies are East India Company

(incorporated in 1600 AD) and Bank of England (incorporated in 1694
AD). The members of chartered companies were not liable for any
debt of the company, and the company enjoyed unlimited rights and
had a vast field of activity.

 Statutory Companies: This type of companies are

incorporated by an act of Parliament or the State Legislature.
Each such company is incorporated by a separate Act. Such
companies are called statutory companies.

For example – Such companies are Reserve Bank of India,

State Bank of India, Industrial Finance Corporation, Life Insurance
Corporation, etc. The world ‘Limited’ is not is not used as a part of
the name of such companies even though their liability is limited.

 Registered Companies: Such incorporation of companies is

quite common. Companies incorporated under the Indian
Companies Act, 2013 or any earlier Act fall under this category.
These are called registered companies. Some companies, even
though incorporated under the Companies Act, are also
governed for most operative matters by the provisions of their
special acts.

For example - Google India Pvt. Limited, Walmart, State Grid,

Toyota, etc.

 Classification on the Basis of Liability

 Limited Liability Companies: The liability of these companies
is limited. It can be limited by the number and value of shares
or limited by guarantee “as the member may undertake to
contribute to the assets of the company in the event of its
being wound up”. It is mandatory for such companies to suffix
the word ‘Limited’ at the end of their names.
For example: LLCs are more common than many realize. Alphabet,
the parent company of Google is an LLC, as are PepsiCo Inc., Exxon
Mobil Corp., and Johnson & Johnson.
 Unlimited Liability Companies: Unlimited liability is the legal
obligation of company founders and business owners to repay,
in full, the debt and other financial obligations of their
companies. The legal obligation generally exists in businesses
that are sole proprietorships or general partnerships. Under the
two business structures, each company owner is equally
responsible for repaying the business’ financial obligations.

For example: Let us assume two partners manage a business in

which they invested 20,000 each. The business also previously took
out a loan of 100,000 that needs to be repaid. If the business is
unable to pay back the loan, the two partners will be equally liable to
settle the obligation.
In such an event, the personal assets of the partners can be seized
against the claims. If one partner does not own any assets, the
second partner’s assets will be seized to recover the full 100,000.
If the business were structured as a limited liability corporation or
limited partnership, the two partners would only lose their initial
investment of 20,000 each. This example illustrates the benefit of
adopting limited liability structures. With limited liability, the
personal wealth of the business owners is not at risk. Only their
initial capital is lost.
 Classification on the Basis of Transferability of
Shares
 Private companies: Companies Act Section 2(68) states that a
company with the minimum paid-up share capital of one lakh
rupees or higher as may be prescribed, is said to be a Private
Company. It provides that:
i. there is a restriction in transferring its shares
ii. its members are limited to two hundred, except in One
Person Company
iii. prohibits any invitation to the public to subscribe for any
securities of the company.
iv. It has been provided in section 2(68) of the companies act
that if two or more persons are holding one or more shares
in a company then they shall be treated as a single
member, for the purpose of this clause. Besides, persons
who are in the employment of the company and persons
who were former members of the company and continued
in that employment and have continued to be members
after the employment ceased shall not be included in the
number of members. Whereas, maximum and minimum
number of Director in a One Person Company is 1.

For example: Many well-known companies are private

companies. Some of the most popular private companies -
examples include service companies such as Deloitte and Price
Waterhouse Coopers, supermarket chains like Publix, and
chemical companies like Cargill (the largest private company).

 Public companies: A public company is a corporation wherein

the ownership is dispensed to general public shareholders
through the free trade of shares of stock over-the-counter at
 markets or on exchanges. Even though a minute percentage of
shares are initially given to the public, the daily trading which
happens in the market will determine the worth of an entire
company. It is termed as ""public"" as the shareholders, who
become equity owners of the firm, may be composed of any
individual who buys stock in the firm.
Public companies are traded publicly within an open market.
Various investors buy shares. Mostly, public companies were
initially private companies who became public companies to
raise capital post complying with all of the regulatory
requirements

For example: Some examples of public companies are, Reliance

Industries, Tata Motors, Bharti Airtel, Larsen & Tourbo, etc.

 Classification on the basis of Ownership

 Government companies: There are companies where the
Central or the State Government, or any of the two, or both of
them combined holds 51% of the stake or capital of that
particular company, then the specified company is deemed to
be a ‘Government Company’. ‘Public Enterprises’ or ‘State
Enterprises’ are the other names for this government company.
They are to be registered legally under the Companies Act.
Under section 2(45) of the Companies Act 2013, a Government
Company is defined as “any company in which not less than
51% of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or
partly by the Central Government and partly by one or more
State Governments, and includes a company which is a
subsidiary company of such a Government company”.
This means that one of the basic features of the company is to
have 51% of governmental stake.
For example: HMT, Hindustan Steel Limited, Hindustan Copper
Limited, Hindustan Antibiotics Ltd., Hindustan Shipyard, Hindustan
Aeronautics Limited, Steel Authority of India Limited (SAIL), Bharat
Heavy Electricals Limited (BHEL), Maruti Udyog Limited, Bharat
Earthmovers Limited (BEML), Madras Refineries Limited (MRL),
Indian Telephone Industries Limited (ITI) etc. are examples of
government companies.

 Holding Companies: Holding company is a business entity—

usually a corporation or limited liability company (LLC).
Typically, a holding company doesn’t manufacture anything,
sell any products or services, or conduct any other business
operations. Rather, holding companies hold the controlling
stock in other companies. Although, a holding company owns
the assets of other companies, it often maintains only oversight
capacities. So, while it may oversee the company's
management decisions, it does not actively participate in
running a business's day-to-day operations of these
subsidiaries. A holding company is also sometimes called an
"umbrella" or parent company.

For example: An example of a well-known holding company is

Berkshire Hathaway, which owns assets in more than one hundred
public and private companies, including Dairy Queen, Clayton
Homes, Duracell, GEICO, Fruit of the Loom, RC Wiley Home
Furnishings and Marmon Group.

 Subsidiary Companies: A subsidiary company is a business

that is owned, either partially or completely, by another
company. This company is referred to as a parent company (if it
has other business operations) or a holding company (if the
sole purpose of the company is to own its subsidiaries). There
 are many different reasons why you may wish to set up a
subsidiary business, including diversifying your business,
limiting your financial liability, and keeping your company’s
brands distinct from one another.

For example: Facebook is a popular company in the digital

industry. It has various subsidiaries acquired from time to time. ...
Google & Nest are subsidiaries of Alphabet.
TCS – Tata consultancy services are of TATA Group.
Jio belongs to the Reliance Group.
Lenovo acquired Motorola.

 Classification on the Basis of Nationality

 Inland Companies: An inland company is one that is
incorporated in India under the Companies Act and is operating
under the provisions of the Act. But some inland companies,
though incorporated under the Companies Act, are governed
by a separate Act for and management – like banking,
insurance, charitable companies, etc.
 Foreign Companies: Foreign company means any company
or body corporate incorporated outside India which—
 has a place of business in India whether by itself or through an
agent, physically or through electronic mode; and
 conducts any business activity in India in any other manner.

DOCUMENTATION OF DIFFERENT
COMPANIES
Memorandum of Association
Memorandum of Association is a legal document which
describes the purpose for which the company is formed. It
defines the powers of the company and the conditions under
which it operates. It is a document that contains all the rules
and regulations that govern a company’s relations with the
outside world. 

It is mandatory for every company to have a Memorandum of

Association which defines the scope of its operations. Once
prepared, the company cannot operate beyond the scope of the
document. If the company goes beyond the scope, then the
action will be considered ultra vires and hence will be void. It is
a foundation on which the company is made. The entire
structure of the company is detailed in the Memorandum of
Association.

Content of Memorandum of Association

Section 4 of the Companies Act, 2013 states the contents of
the memorandum. It details all the essential information that
the memorandum should contain. 

Name Clause
The first clause states the name of the company. Any name can
be chosen for the company which should not be the same as of
an existing company.

Registered Office Clause

The Registered Office of a company determines its nationality

and jurisdiction of courts. It is a place of residence and is used
for the purpose of all communications with the company. 
Before incorporation of the company, it is sufficient to mention
only the name of the state where the company is located. But
after incorporation, the company has to specify the exact
location of the registered office. The company has to then get
the location verified as well, within 30 days of incorporation. 
Object clause
The Object Clause is the most important clause of
Memorandum of Association. It states the purpose for which
the company is formed. The object clause contains both, the
main objects and matters which are necessary for achieving
the stated objects also known as incidental or ancillary
objects. 

Liability Clause

The Liability Clause provides legal protection to the

shareholders by protecting them from being held personally
liable for the loss of the company. 

It states the total amount of share capital in the company and

how it is divided into shares. The way the amount of capital is
divided into what kind of shares. The shares can be equity
shares or preference shares. 

Articles of Association (AoA)

The Articles of Association (AoA) is a document that defines the
purpose of a company and specifies the regulations for its
operations. The document outlines how tasks should be
accomplished within an organization, including the preparation and
management of financial records, and the process of director
appointments.

The articles of association will usually specify the way a company

issues stocks, distributes dividends, and performs financial records.
The document is focused on giving the reader information about the
methods a company uses to achieve its daily, monthly, and yearly
goals.
The articles of association are relatively similar in any part of the
world, even though the exact terms and items vary across
jurisdictions. In general, it includes the following:

 Provisions on the company name

 Purpose of the company
 Share capital
 Organization of the company
 Provisions on shareholder meetings

Difference between MoA and AoA

Memorandum of
Articles of Association
Association

It details the relationship of a

It regulates the internal
company with the outside
affairs of the company. 
world. 

It is defined in section
It is defined in section 2(56)
2(5) of the Companies
of the Companies Act, 2013. 
Act, 2013. 

It contains the objects of the It contains all the rules of

company. the company.

Approval of the Central Approval of the Central

Government is required for Government is not
alteration.  required for alteration. 

Forms of Memorandum of Forms of Articles of

Association are in Tables Association are in Tables
A,B,C,D,E of Schedule 1.  F,G,H,I,J of Schedule 1.
Acts ultra vires to the Acts ultra vires to the
memorandum are void and Articles can be made
cannot be made legitimate by legitimate by ratification
ratification of shareholders.  of shareholders. 

The memorandum should not

The articles should not be
be in contravention to the
in contravention to the
provisions of the Companies
memorandum. 
Act, 2013. 

Both Memorandum of Association and Articles of Association

are essential documents which describe the procedure for
companies to deal with the outside world and manage its
internal affairs. 

CONSENT OF DIRECTORS
The proposed directors of a company have to give a written consent
confirming to act as a director and should be ready to buy& pay amount of
qualification of shares as mentioned in Memorandom of association

Receipt of payment fees

It is necessary to pay registration fee for registration of the company
depending on the authorized share capital of the company which is to be
submitted to the ROC.

Agreement if any
If any sort of agreement is there between manager/ director or managing
director, it is to be mentioned and is required to be submitted to the ROC
STATUTORY DECLARATION
A statement stating that all the legal requirements pertaining to registration of
a company is to be submitted to the registrar with all other documents for
registration of the company which are supposed to be signed by a person
named as director in the AoA and by an advocate or chartered accountant (CA)
or Cost accountant or Company secretory (CS) who is engaged in the formation
of the company.

SUBMITTED BY: Switi Malik (24093):

: Adarsh Pandey (24091)