The definition of the word “Company” means any entity incorporated under the Companies Act 2013 or under any other previous law. Different types of companies exist in India based on their ownership, nature of liability and the business/ activities they are into, private limited company, public company, one person company, company limited by shares, company limited by guarantee, unlimited company, nidhi company, producer company, section 8 company are some among them.

Companies by nature of ownership

On the basis of nature of ownership, a company can be divided into the following categories

Public Company

The shares of a public company are traded freely in a stock exchange giving opportunities to the public at large to take part in the ownership of the company. Since public money is involved, the affairs are regulated frequently by the authorities through regular MCA filings. The minimum number of members required for a public company incorporation are 7 and the directors are 3. There is no restriction to the upper limit of number of members and the maximum number of directors possible is 15. The minimum paid up capital required to float a public company is Rs.5 lakhs. 

One of the attraction of public company is that it can raise capital easily when compared to other forms of companies as there are a significant number of shareholders involved and the capital requirements are shared over a large number of shareholders. In normal scenario a business venture can be kicked off as a private limited company with limited members and limited capital at first and it can be scaled up to a public listed company as it grows allowing the stakeholders to raise capital from general public. You may also be interested in learning on Internal Auditing and Management Consultancy in Kerala

Government Company

A government company means a company in which 51% or more of the shares are held by the central, state or a combination of both and includes a company which is a subsidiary company of another government company. 

The definition of a government company leads to the definition of subsidiary company. Subsidiary company  means a company owned or controlled by another company which is its holding company or parent company.

Private Limited Company

This is one of the most famous type of business form in India . A private limited company is a company in which the ownership is held by a small group of individuals and their shares are not usually traded in the stock exchange. In a private limited  company, the corporate assets are separated from personal assets. Therefore, each shareholder is only responsible for his share in the total capital. There is a minimum of 2 shareholders and 2 directors required to form a private limited company and the maximum number of members is restricted to 200 and directors to 15. The compliance of a limited liability company includes keeping records of financial transactions, board meetings and annual reports, etc. In addition, the totalcapital of the entity is made up of shares and these shares can be sold / transferred to another natural person who becomes one of the owners of the company after this transfer or sale of shares.

One Person Company

The concept of One person company was introduced in India by the Companies Act,2013 before which the only scope of starting a sole owner business was sole proprietorship and the company form of business was not open to a single owner. 

An one person company can be floated with a single shareholder and director. However, an one person company has certain restrictions with respect to the transferability of shares and raising funds. In an one person company, a nominee is also appointed alongwith the member/ shareholder since the company is to be , there is only a sole shareholder and director and the company is to be taken over  in case of death or incapacitation of the  shareholder.

Companies based on liability

There is another classification of companies based on liability which are as follows.

Company Limited By Shares

In an company limited by shares, the capital of a company is divided into shares. Each shareholder commits or subscribes to own a certain number of shares for which the payment is made in advance or in parts as decided by the board of directors of the company. In these types of companies, the liability of a shareholder is only limited to the amount unpaid on shares subscribed by the shareholders.

Company Limited By Guarantee

In these types of companies, the capital of the company is not divided into shares but it is in the nature of guarantee. The member agrees to bring in an amount or guarantees an amount as and when the need arises. Hence the liability of its members is limited to the amount guaranteed by them and not beyond that in the event of winding up of the company.

Unlimited Company

In an unlimited company, the liability of members is not limited but it extents even to the personal assets of the members in the event of winding up where the company’s assets are not sufficient to meet its liabilities just like a partnership or a sole proprietorship form of business. These types of companies are not preferred nowadays since the basic instinct of going for a company is the limited liability and perpetual succession.

Companies based on the business or activity

Based on the nature of activity or business undertaken by the company, there are few more major types of companies available for registration in India which are as follows.

Section 8 Company

Section 8 company is an organization, registered for carrying out activities which are not with the intention of making profit.. The main objective/ activities of these companies includes the promotion of the arts, commerce, charity, education, environmental protection, etc. Therefore, the application of its profits, if any, or other income is used to promote the goals. It operates in the same way as any other company, including all the rights and obligations  that derive from it. It is important to remember that it differs from a company in one very important respect, that is, it cannot use the words “Section 8 “ or ”Limited “ in its name. The registration process of a section 8 company is bit different from other companies where certain extra documents and projections are required. 

Banking Company

In accordance with Section 5 of the Banking Regulation Act 1949, a banking company means a company that accepts deposits of money from public, for loan or investment purposes, which are redeemable on demand or otherwise and withdrawn by cheque, draft, order or other instrument. In short, a banking company means and includes any company that does banking business in India. Consequently, any commercial or production enterprise which accepts deposits of money from the public for the sole purpose of financing its activity is not considered to be a bank. Banking companies in India are licensed by the Reserve Bank Of India. RBI recognizes and approves a banking company based on the fulfillment of certain prescribed norms such as the capital requirement, maintaining reserves with RBI etc. Strict norms are imposed on banking companies since it deals with public money.

Chit Fund Company

A chit fund company is basically a private limited company which deals in the business of operating chit funds. In a chit fund scheme, a group of people contribute periodically towards  the chit value for a duration equal to the number of investors ( members or subscribers). The quantum collected is given to the person, who’s either named through a lucky draw (lottery system) or a transaction. Similar to a banking company, there are certain prescribed norms for chit fund companies. A chit fund company is to be registered with the respective state’s chit fund act inorder to commence business. According to the chit fund act, a chit fund company should be financially sound and it should deposit an amount as security deposit with the registrar of chit funds

Foreign company

A foreign subsidiary is a company in which 50% or more of its shares are held by a company incorporated in another foreign country. The aforementioned foreign company in this case is called a holding company or parent company. For a company to be a foreign affiliate in India, the company itself must be incorporated in India.

It does not matter in which country the parent company is incorporated. Compliance rests on many aspects of the business. It is necessary to understand what all the conformities are supposed to satisfy according to the type of company incorporated, the sector of activity, the annual turnover, the number of employees. Further a foreign company is liable to tax at a higher rate of income tax which ranges from 40% to 50% excluding the other charges of cess and surcharge. 

Producer Company

A producer company can be defined as a legally recognized organization of farmers / farmers with the aim of improving the standard of living and ensuring a good state of their available support, income and profitability. Under the Companies Act 1956, a producer company can be created by 10 people (or more) or 2 institutions (or more) or by a combination of the two (10 people and 2 institutions) whose business objective is one of following:

• Production
• Selling
• Export
• Harvest
• Pooling

Apart from other companies, the producer companies are regulated by a special section of the companies Act 2013, where the incorporation and periodic compliance requirements are different from normal companies.

Non-Banking Financial Company

A non-bank financial company (NBFC) is a company registered under the Companies Act, 2013 or 1956 engaged in the business of providing loans and advances, the acquisition of stocks / bonds / securities issued by the government or the local authority or other negotiable securities of the same nature, leasing, hire-purchase, insurance, financial activity but does not include establishments whose main activity is agricultural activity, industrial activity, purchase or sale of assets (other than securities) or the provision of services and the sale / purchase / construction of real estate. Unlike a banking company, an NBFC cannot accept deposits from public which are repayable on demand.

Nidhi Company

Nidhi companies belong to the structure of non-bank financial companies. Registering a Nidhi company allows a Nidhi to borrow from its members and lend to members. Nidhi companies are registered in India and are established to cultivate the habit of saving and saving among its members. The funds that are paid to a Nidhi company come only from its members. To incorporate a Nidhi company, no license is required from the Reserve Bank of India. Therefore, the formation of the Nidhi company is relatively easy. Nidhi companies are registered as public companies and must have Nidhi Limited in the surname.

If you are unsure of what types of business registration are best for your business, our experts can help you select the ideal entity type + that best fits your business needs taking into account other factors such as capital requirements, compliance burden, funding for lending. requirement, type of property needed, etc. To get your free consultation today, visit the company’s online registration.. Contact your Business and Company Registration Consultant in Kerala today.