Types of Companies

1
 Business Organisation
• Company has became dominant business form
in India.
• The business organisation become dominant
from the point of view of;
– their ability to raise capital (money),
– their
– ability to minimise risk, and
– their ability to provide some sort of clear
organisational structure
 Classification
• There is no fixed type or classification of a
company.

• Companies may be classified on the basis

of their incorporation, number of members,
size, basis of control and motive.
 On the basis of Incorporation

• Statutory Companies: These are

constituted by a special Act of Parliament or
State Legislature. The provisions of the
Companies Act, 2013 do not apply to them.
Examples of these types of companies are
Reserve Bank of India, Life Insurance
Corporation of India, etc.
• Registered Companies: The companies
which are incorporated under the Companies
Act, 2013 or under any previous company
law, with ROC fall under this category.
• Chartered Company
 On the basis of Liability
Company Limited by Shares
• Section 2 (22)
• A company that has the liability of its
members limited by the memorandum to the
amount, if any, unpaid on the shares
respectively held by them is termed as a
company limited by shares.
• For example, a shareholder who has paid `75
on a share of face value ` 100 can be called
upon to pay the balance of `25 only.
Companies limited by shares are by far the
most common and may be either public or
private.
• MoA- Schedule 1
Company Limited by Guarantee
• Section 2 (21)
• A company that has the liability of its members
limited to such amount as the members may
respectively undertake, by the memorandum, to
contribute to the assets of the company in the event
of its being wound-up, is known as a company limited
by guarantee.

• The members of a guarantee company are, in effect,

placed in the position of guarantors of the company's
debts up to the agreed amount.
• Mostly preferred by arts, sciences Clubs, trade
associations

• Table G & Table H Sch. I

Unlimited Liability Company
• Section 2(92)
• In this type of company, the
members are liable for the
company's debts in proportion to
their respective interests in the
company and their liability is
unlimited.
• Such companies may or may not
have share capital.
• They may be either a public
company or a private company.
• Table I & J
 On the basis of membership
• The three basic types of companies which
may be registered under the Act are:
– Private Companies;
– Public Companies; and
– One Person Company (to be formed as
Private Limited)
– Deemed Public Company
Private Company
Public Company
OPC
 Deemed public Company
• There is no specific definition given in the Act for a Deemed Public Company.
• However, proviso to the definition of Public Company under section 2 (71) of the Act
reads that ―a company which is a subsidiary of a company, not being a
private company, shall be deemed to be public company for the
purposes of this Act even where such subsidiary company continues to
be a private company in its articles.
 Interpretation
• Hillcrest Realty Sdn. Bhd v.Hotel Queen
Road (P.) Ltd, 2006, CLB Delhi
• the Company Law Board, Delhi Bench held at para. 36 that “all the
provisions in the Articles to maintain the basic characteristics of a
private company in terms of section 3(1)(iii) will continue to govern
the affairs of the company even though it is a subsidiary of a public
company”.
• It was held by the Delhi CLB Bench that the basic characteristics of
a private company in terms of section 3(1)(iii) do not get altered just
because it is a subsidiary of a public company in view of fiction in
terms of section 3(1)(iv)(c) that it is a public company. It was further
held by the Bench that it may be a public company in terms of other
provisions of the Act but not with reference to its basic
characteristics.
Test Your Learning
 Other Forms of Companies
• Small company
• Associations not for profit having license under Section 8
of the Companies Act, 2013 or under any previous
company law;
• Government Companies;
• Foreign Companies;
• Holding and Subsidiary Companies;
• Associate Companies/Joint Venture Companies
• Investment Companies
• Producer Companies.
• Dormant Companies
Small Company
• Section 2 (85)
• Small Company means a company other than a Public Company
that satisfies either of the following conditions:
– Paid-up share capital: which does not exceed 50 lac rupees or
• such higher amount as may be prescribed which shall not be
more than 5 crore rupees
Or
– Turnover : 2 crore rupees or
• such higher amount as may be prescribed which shall not be
more than 20 crore rupees.
• Provided that nothing in this clause shall apply to
1. A Holding Company or a Subsidiary Company;
2. A company registered under section 8; or
3. A company or body corporate governed by any special Act.
Issues with the concept
• Problem to ascertain whether a company is a Small Company based
on the paid share capital or turnover as per last profit and loss
account.
– The status of a company as a Small Company may change from year to
year.
– Holding Company and Subsidiary Company will never be able to avail
the special privileges of a Small Company even if they fulfill
requirement of a Small Company.
• MCA passed an order Companies (Removal of Difficulties) Order,
2015 on 13th Feb, 2015
• New definition:
– ‘Small Company’ is a company (other than Public Company) whose
paid up capital does not exceed Rs. 50 lacs and turnover as per last
profit and loss account does not exceed Rs. 5 crores.
– As per Companies (Amendment) Act, 2017, having effect from
07.05.2018 the paid up capital has been prescribed upto Rs. Ten crores
and turnover as per immediately preceding financial year has been
prescribed upto one hundred crores.
 Relaxations for small companies

✓ Not required to prepare cash flow statement along with

Balance Sheet & PnL A/C (2(40))
✓ Required to have only one meeting of Board/ gap of 90
days (Section 173 )
✓ MnA without court fees
✓ Financial statement can be signed by director &
submitted to RoC (Section 92(1))
✓ Rotation of auditor & term of appointment nt applicable
• Financial assistance can be given for purchase of or
subscribing to its own shares or shares in its
holding company (67(2))
• Not Required to prepare AGM Report (121(1))
• Small company need not have more than two
directors in its Board. (149(1) )
• Need not appoint Independent directors on its
Board (149(4))
• Directors not required to retire by rotation.
• Restrictive provisions regarding total number of
directorships not apply to Small company
 Dormant Company

• Section 455/Companies (Miscellaneous) Rules, 2014

• Status can be attained by application to ROC (Form No.
29.2) or
• Suo-Motto
For the purpose of this definition,
“significant accounting transaction” means
any transaction other than –
• payment of fees by a company to the Registrar;
• payments made by it to fulfil the requirements of this Act or
any other law;
• allotment of shares to fulfil the requirements of this Act; and
• payments for maintenance of its office and records.
• Dormant Company under section 455 can be
formed
– for a future projector to hold an asset or intellectual
property and
• “has no significant accounting transaction
– OR
– Inactive for last 2 years; i.e. ;
• No business or operation or;
• No significant accounting transaction or;
• Not filed financial statement or;
• Not filed annual returns or;
• Procedure for Obtaining Status
– Special resolution of shareholders
– Application to ROC--------------feees 2000 to 20000Rs.
– After satisfying following conditions (Rule 3 of the Companies
(Miscellaneous) Rules, 2014)
a) no inspection, inquiry or investigation has been ordered or taken up or carried out
against the company;
b) no prosecution has been initiated and pending against the company under any law;
c) the company is neither having any public deposits which are outstanding nor the
company is in default in payment thereof or interest thereon;
d) the company is not having any outstanding loan, whether secured or unsecured:
e) Provided that if there is any outstanding unsecured loan, the company may apply
under this rule after obtaining concurrence of the lender and enclosing the same
with Form MSC-1 ;
f) there is no dispute in the management or ownership of the company and a certificate
in this regard is enclosed with Form MSC-1;
g) the company does not have any outstanding statutory taxes, dues, duties etc. payable
to the Central Government or any State Government or local authorities etc.;
h) the company has not defaulted in the payment of workmen’s dues;
i) the securities of the company are not listed on any stock exchange within or outside
India.
 Relaxations:

• Under Clause (40) of Section 2, for the purpose of

Dormant Company, A cash flow statements is not part of
their Financial Statements.
• Under Sub – section (3) of Section 173, only one
meeting of Board of Directors is required in each half of
calendar year. There must be a gap of not less than
ninety days is required between two board meetings
• A dormant company shall have such Minimum Number
of Directors.
– 3 directors in case of a public company,
– 2 directors in case of a private company and
– 1 director in case of a One Person Company.
 How long ?
• 5 consecutive years at a time
Advantage
Test Your Learning
Producer Company
• Reforms in Cooperative
Business
• DCA High Powered Committee
Dr. YK Alagh.- 1999
• Companies(Amendment) Bill
2002- Inserted CH-IXA
• Ref: 465(1) Companies Act 2013
• CH-XA Companies Act 1956-(Sec 581A to 581ZT of the
Companies Act 1956)
• The objects of producer companies shall include one or more of the eleven
items specified in the Act, the more important being:
– (i) Production, harvesting, procurement, grading, pooling, handling, marketing,
selling, export of primary produce of members or import of goods or services for
their benefit;
– (ii) Processing including preserving, drying, distilling, brewing, venting, canning
and packaging of produce of its members; and
– (iii) Manufacture, sale or supply of machinery, equipment or consumables mainly
to its members.
• The other objects include rendering
– technical or consultancy services,
– insurance,
– generation,
– transmission and distribution of power and revitalisation of land and water
resources;
– promoting techniques of mutuality and mutual assistance;
– welfare measures and providing education on mutual assistance principles
 Difference between Cooperative and Producer Company

Cooperatives Producer company

It registered under the Cooperative registered under the Indian company
society Act Act
Cooperative company is single Producer company is
objected multi objectives
Cooperative company share is not area of restriction is entire union of
tradable and transformable India take operation
Cooperative company Area of share is not Tradable but it can
operation is restricted transferable to limited members on
per value
Cooperative company membership is membership will be individual, group,
individual and cooperatives Association, producer of service.

one member can vote only one vote one member can vote only one vote
but register of cooperatives have veto company can not hold veto power.
power
borrowing power is restricted borrowing power is more freedom
CA Rajkumar S. Adukia 29
and more alternative.
• PROCEDURE FOR INCORPORATION OF PRODUCER COMPANY

• Section 581C of the Companies Act, 1956 lays down the provision
relating to formation and registration of producer company.
• 10 or more individuals,
• each of them being a producer or
• two or more producer institutions or
• a combination of ten or more individuals and producer
• institutions, desirous of forming a producer company
having its objects, specified in section 581B

• A producer company can be incorporated only for the objects as

given in section 581B of the Companies Act, 1956 and for no other
purpose, whether directly or indirectly.

• Last words in name as producer limited company

• Other Provisions similar to Private Company

• “Indian Organic Farmers Producer Company Limited” is the first
Farmers’ Producer Company incorporated in the year 2004.

Benefits
 better bargaining position in the market
 Elimination of intermediaries
 Reduced Cost due to Bulk purchases
 Acquisition of better technology resulting in enhanced quality and
productivity
 Timely and easy availability of inputs
 Every Member shall, on the share capital contributed, receive only a
limited return
 The surplus if any, remaining after making provision for payment of
limited return and reserves referred to in section 581ZI, may be
disbursed as patronage bonus, amongst the Members, in proportion
to their participation in the business of the Producer Company, either
in cash or by way of allotment of equity shares, or both, as may be
decided by the Members at the general meeting.
 Nidhi Company
• A Nidhi company’s hole business is borrowing and
lending money between its members; these are known
as Permanent Fund, Benefit Funds, Mutual Benefit
Funds, and Mutual Benefit Company.

• It only allows individual members. A firm or group or

company cannot become a member of a Nidhi company.
These are non-banking finance organization in India,
recognized under section 406 of the Indian Companies
Act, 2013.
• The Central Government made ‘Nidhi Rules,
2014’ for the purpose of carrying out the
objectives of ‘Nidhi’ companies. These rules
shall be applicable to-

– Every company which had been declared as a Nidhi or Mutual

Benefits under Section 620A(1)of Companies Act, 1956;
– Every company functioning on the lines of a Nidhi company or
Mutual benefit society but has either not applied for or has
applied for and is awaiting notification to be a Nidhi or Mutual
Benefit Society under Section 620A(1)of Companies Act, 1956;
– Every company incorporated as a Nidhi pursuant to the
provisions of Section 406 of the Companies Act, 2013.
 Requirements for Nidhi Company

• A Nidhi company to be incorporated under this

Act shall be a Public Company;
– It shall have a minimum paid up equity share capital of
5,00,000/-;
– No preference shares shall be issued.
– If preference shares had already been issued by a Nidhi
Company before commencement of this Act, such preference
shares are to be redeemed in accordance with the terms of issue
of such shares;
– The object of the company shall be cultivating the habit of thrift
and savings amongst its members, receiving deposits from and
lending to its members only for their mutual benefits;
– It shall have the words ‘Nidhi Limited’ as part of its name;
Example
 Difference between Nidhi and
Chitfund
• Chit Fund Company is also known as the committee, it is a type of a
saving scheme in India where fixed installment is paid by the
members over a definite period of time. It is one of the special type
of companies which require additional licenses to work.
• Chit funds Act 1982
Test Your Learning
Associations not for profit
• Section 8 + Rule 19 and 20 of Companies
(Incorporation) Rules, 2014
• Applicant prove to the satisfaction of the
Central Government that:
(a) its objects includes promotion of commerce,
art, science, sports, education, research, social
welfare, religion, charity, protection of
environment or any such other object;
(b) the company on incorporation intends to
apply its profits, if any, or other income in
promoting such object; and
(c) the company intends to prohibit the
payment of any dividend to its members.
 features
➢ Not required to add ltd. or pvt. Ltd after name
➢ The company is registered without paying any stamp duty on its
Memorandum and Articles.
➢ enjoys all the privileges of a limited company
➢ exemption by a notification is granted by the Central Government.
➢ Can have firm as its member
➢ Alteration of MoA after approval of CG
➢ Circular 2014- CC powers transferred to Regional Director

➢ Contravention
➢ Licence cancel
➢ Amalgamation
➢ Winding up in public Interest
➢ SEBI SRO Regulation 2004-Application by Sec 25 Co only.
• Tax Provisions

• If Section 8 Company obtains 12A

registration from Income tax Department,
the amount received (donation) by Section
8 Company shall be exempted from tax.
Government Companies

Section 2(45)
•51% paid-up share cap
•CG/SG/jointly
 Question
• Whether the Government Company is
Government Department?

• Whether Government Company

Employees are public servants?
 Interpretations
• Hindustan Steel Works Construction Co. Ltd. v. State of
Kerala (1998) 2 CLJ 383-
– Notwithstanding all the pervasive control of the Government, the
Government company is neither a Government department nor a
Government establishment for the purpose of statutory
application under special state Act.
• A.K. Bindal v. Union of India (2003) 114 Com Cases 590
(SC)]-
– Since employees of Government companies are not
Government servants
– they have no legal right to claim that the Government should pay
their salary or that the additional expenditure incurred on
account of revision of their pay scales should be met by the
Government.
Foreign Company
• Section 2(42)
– Company/Body Corporate
– Incorporated Outside
• Have place of business in India
– By itself
– Through agent
– Electronically
• Conduct business activity in India
• Compliances for Foreign Companies under
Companies Act, 2013 and rules made thereunder:
– Chapter XXII
– Companies(Registration of Foreign Companies) Rules, 2014
 Illegal Association
• Section 464/Sec 11 Old
• No company, association or partnership
– consisting of more than 10 persons for the purpose of
carrying on the business of banking and more than 20
persons for the purpose of carrying on any other
business can be formed
• unless it is registered under the Companies Act or is formed in
pursuance of some other Indian
• New: 100 Limit
• Rule: 50 Limit (Rule 10 of Companies(miscellaneous) Rules,2014)
 EXCEPTIONS UNDER SECTION 464 OF COMPANIES ACT 2013

• Section 464(1) of Companies Act 2013 is not applicable in the case

of:-
• 1) Hindu undivided Family or
– However as per the Rule 10 of Companies(miscellaneous) Rules,2014 if 2 or
more Hindu family firms carry on business if their association is more than 50
then it will considered as illegal.
– While calculating the members under Hindu Family Firms as per the law ignore
the Minor members from such family, but if they attain the majority they will be
considered as Member.
• 2) An Association or Partnership formed by Professionals who are
governed by special acts like Limited Liability Partnership.
• Such as:
– The Institute of Company Secretaries of India,
– The Institute of Chartered Accountants of India, &
– The Institute of Cost Accountants of India.
• In case of illegal association every member who are involved shall
be punishable with a fine which may extend to 1 lakh rupees And
shall also be personally liable for all liabilities.
Test Your Learning
 Holding & Subsidiary

• Section 2(46) “holding company”, in

relation to one or more other companies,
means a company of which such
companies are subsidiary companies -
• 2(87) “subsidiary company” or “subsidiary”, in relation to
any other company (that is to say the holding company),
means a company in which the holding company—
– (i) controls the composition of the Board of Directors; or
– (ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary
companies:
• Provided that such class or classes of holding companies as may be prescribed shall not have layers of
subsidiaries beyond such numbers as may be prescribed.

• Explanation.—For the purposes of this clause,—

– (a) a company shall be deemed to be a subsidiary company of the
holding company even if the control referred to in sub-clause (i) or sub-
clause (ii) is of another subsidiary company of the holding company;
– (b) the composition of a company’s Board of Directors shall be deemed
to be controlled by another company if that other company by exercise
of some power exercisable by it at its discretion can appoint or remove
all or a majority of the directors;
– (c) the expression “company” includes anybody corporate;
– (d) “layer” in relation to a holding company means its subsidiary or
subsidiaries;
 Analogy: Control
Company
Directors Members
• Sec 2(27): control shall include the right to
appoint majority of the directors or to
control the management or policy
decisions exercisable by a person or
persons acting individually or in concert,
directly or indirectly, including by virtue of
their shareholding or management rights
or shareholders agreements or voting
agreements or in any other manner
 Interpretations
• As per Sec 2(87) Company include a ‘Body Corporate’.
• As per Sec 2(11) body corporate includes a ‘Company
incorporate out of India’.
• Thus, an Indian company in which more than 50%
shares are held by a foreign body corporate will be a
‘Subsidiary Company’.
• Similarly, any Indian body corporate can be ‘holding
company’ even if that body corporate is not registered as
‘company’ under company Act.
• An Indian company can be holding/subsidiary of a
foreign body corporate even if it is not registered as a
Company.
Example
 Associate Company
• An associate company also known as joint ventures; is a
firm that is owned in part by a parent company entity
who will own a minority or non-controlling stake in the
associate company.
• For example: Company “A” controls 20% or
more but up to 50% of total share capital (equity
and convertible preference) , or of business
decisions under an agreement of Company “B”
then the Company “B” will be called Associate
Company of Company “A” (other Company).
 Amended Definition of Associate Company as per Section
2(6) of Companies (Amendment) Act, 2017

• “associate”, in relation to another company, means a company in which that

other company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint venture
company.
• Explanation.—For the purpose of this clause,—
– (a) the expression “significant influence” means control of at least twenty percent of total
voting power, or control of or participation in business decisions under an agreement;
– (b) the expression “joint venture” means a joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the arrangement;
• For example: Company “A” controls 20% or more but upto 50% of total
voting power, or control of or participation in business decisions under an
agreement of Company “B” then the Company “B” will be called Associate
Company of Company “A” (other Company).
 Investment Company

• The Investment Companies as defined

under section 186 of the Companies Act,
2013, are the companies which have a
fundamental business or transaction
relating to the securities of other
companies. Securities may be of a nature
of shares or debenture or other securities
offered by such entity.
 Offshore Company
• An Offshore Company is a corporation or
company or LLC or similar class of entity
formed in a foreign country (a different
country from the country of residence of
the stakeholders); to operate outside of
the country of residence.
On the basis of access to
capital

Listed Company
• SEBI & MCA Regulated

Unlisted Company
• MCA Regulated
Test Your Learning