Types of Companies

There are 3 different types of companies. They are divided on the basis of:-

(A ) Incorporation / Registration.

(B) Liability

(C)Ownership

(A) On the basis of Incorporation / Registration:

(1) Chartered Company: Chartered companies are the companies which were formed
during 17th and 18th century by the Kings and Emperors by passing Special Charter
known as "Royal Charter". The rules and regulations for the working and governing of
the company are clearly mentioned in 'Royal Charter'. Nowadays chartered companies
are not formed and these companies are not found in India. East India Company, Bank
of England, etc. are the examples of chartered companies.

(2) Statutory Company: Statutory companies are formed by passing a special act, either
by State Legislature or by Parliament. Generally Statutory Companies are formed to run
the public utility concerns like Railways, Water works, Gas works, Electricity, etc. The
rules and regulations for the working and governing of the company are clearly
mentioned in the special act, known as "Statue". Life Insurance Corporation, Air India,
Unit Trust of India, The Reserve Bank of India, Export Import Corporation of India, are
the examples of statutory companies.

(3) Registered Company: A company registered under the Companies Act, is known as
"Registered Company". The rules and regulations regarding its formation, working, and
continuity of the company are clearly mentioned in the relevant Companies Act. In
India all the companies except Chartered Companies and the Statutory Companies are
Registered Companies. The registered company is owned by shareholders and
managed by the elected representative of shareholders, which is the Board of Directors.

A Registered Company may be from one of the following companies:

(a) A Company Limited by Shares,

(b) A Company Limited by Guarantee,

(c) Private Company,

(d) Public Limited Company,

(e) Unlimited Liability Company etc.

Hindustan Lever Limited, Proctor and Gamble, etc. are some of the examples of
Registered Companies.

(4) Foreign Company: Foreign Company is company which is registered outside India
under the Companies Act of that respective country, having its branch for business in
India. The Foreign Company has to submit the following documents with the Registrar
of Companies within 30 days of establishing its business in India:

(a) A certified copy of Memorandum of Association and Article of Association of the

company translated in English,

(b) The complete address of Registered Office of the Company,

(c) A list of directors and secretary of the company,

(d) The complete address of its Head Office in India.

(B) On the basis of Liability:

(1) Company Limited by Shares: The company where the liability of shareholders of
the company is limited up to the extent of face value of the shares held by every
shareholder is called company limited by shares. The shareholders are not responsible
for the liabilities of the company and they cannot be called upon to pay even a single
paisa more than that of the unpaid amount of the shares. These types of companies are
very popular in India. The principles of limited liability attract investors, to invest in the
shares of the company.

(2) Company Limited by Guarantee: The liability of members of the company is limited
up to specific amount guaranteed by them. The purpose of such a guarantee is to enable
the company to have funds to meet its liability at the time of winding up. The important
features of such companies are:-

(a) Each member promises to pay a fixed amount in the event of wind up.

(b) This amount is known as guarantee amount.

(c) The amount of guarantee is laid down in the Memorandum of Association.

(d) The amount of guarantee is paid only in the case of winding up of the company.

(e) Such a company may or may not have share capital.

(f) The capital may be raised through entrance fees, membership fees, donations, etc.
Such company may be a public company or a private company and can be converted in
to a company with liability, limited by shares by passing a special resolution. Examples
of such companies are Trade Unions, Charitable Hospitals, Educational Institutions, etc.

(3) Company with Unlimited Liability: A company which is registered without the
provision that the liability of its members is limited is an Unlimited Liability Company.
Liability of members of such company is unlimited like the sole trader of sole trading
concern and the partners of partnership firm. It means in the case of winding up of the
company, the private property of the members can be taken over y the creditors for the
recovery of their dues i.e. debts. Such companies are not popular in India.

(C) On the basis of Ownership:

(1) Private Company: A Private Company is a company which by its Articles of

Association restricts the following:

(a) The right to transfer shares,

(b) Limits the number of its members to 50,

(c) Prohibits an invitation to public to subscribe to its shares or debentures.

A private company is an incorporated body, registered under the Companies Act with
three important restrictive provisions in its Articles of Association, which contains rules
and regulations for the internal management of the company. A private company
requires minimum two members and two directors. A private company has to file the
following documents with the Registrar of Companies.

(i) Memorandum of Association: It contains the information about the name, address,
capital and about the objects for which it is formed. It is to signed by at least two
persons. The words "Pvt. Ltd." Or "Private Limited" must be added with the name of
the company.

(ii) Articles of Association: The articles contain the rules and regulations for the internal
management of the Company.

(iii) Statutory Declaration: A declaration that all the legal requirements have been
complied with. After satisfying himself the registrar issued a Certificate of
Incorporation which qualifies the company to start its business.

Restrictions imposed on private Companies:

(1) A private limited company must include the words "private limited" with its name.
(2) A private company must have its own Articles of Association.

(3) The shares of private company are not transferable.

(4) A private company cannot invite public to subscribe its shares or debentures.

(5) The maximum number of members in a private company is restricted to 50.

(6) Every year private company must file three copies of Balance Sheet and Profit and
Loss Account together with Auditors Report, to the Registrar of companies.

(7) A member of private company can appoint only one proxy.

(2) Public Company: Indian companies Act, 1956 defines, "A public company is a
company which is not a private company and which does not have any restrictions of a
Private Company."

A public company requires minimum seven members and there is no upper limit for
the maximum no. of members. It requires at least three directors and the directors retire
by rotation.

Public Company has to file the documents like Memorandum of Association, Articles of
Association and Prospectus with the Registrar of Companies. Public company can
adopt "Table-A" in its place of Articles of Association and can file Statement in Lieu of
Prospectus in place of "prospectus". Public company has following features:-

(a) Public company collects capital from general public by way of issuing shares and
debentures,

(b) The shares of Public company are freely transferable,

(c)The liability of the members of Public Limited Company is limited up to the extent of
face value of the shares purchased by them,

(d) Public company must collect minimum subscription and must obtain Trading
Certificate i.e. Certificate of Commencement of Business to start the business,

(e) Public company must start its business within one year of getting Incorporation
Certificate otherwise it will be wound up by the court,

(f) It is also compulsory for a Public Company to hold statutory meeting within six
months of obtaining "Trading Certificate".

(3) Deemed Public Company: As per section 43 (A) of Companies Amendment Act,
1960, a company which is originally registered as Private company but is converted into
Public company due to operation of law or due to any of the following reasons, is
termed as Deemed Public Company.

(a) If 25% or more paid up share capital of a private company is held by a public
company

(b) If a private company holds 25% or more paid up capital is held by a public company

(c) If a private company holds 25% or more paid up capital of a Public company.

(4) Government Company: A government company is one in which, 51% or more, paid-
up capital of the company is taken over either by Sate Government or by Central
Government or by both. The government companies are incorporated under Indian
Companies Act. It may be noted that in a government company, government is the
major shareholder and majority of directors are appointed by the government.

(5) Multinational Company: A multinational company is the company which is

registered in one country but operated its business in multiple countries. The
multinational companies have huge investments and huge profits. They build up big
Business Empire in many countries. Multinational companies create employments
opportunities and these companies recruit and promote managerial persons on merit.

(6) Holding Company: Company which holds 50% or more paid up capital of another
company i.e. Subsidiary Company is known as the Holding Company. Holding
Company controls and manages the entire affairs of subsidiary company.

(7) Subsidiary Company: The Company of which, 50% or more paid up capital over by
another company i.e. Holding Company is known as Subsidiary Company. The
management of Subsidiary Company is controlled by Holding Company. But
Subsidiary Company does not lose its identity.