Kinds of Companies

Companies can be differentiated by their different basis they are shown in the below:


1. On the Basis of Incorporation

i. Chartered Companies: Those companies, which are incorporated under a special charter granted by the king of queen of England. For example, East India Co. Was a chartered company government by its charter through which the nature of the company, and at the same time its incorporation was defined.

ii. Statutory Company: These are the companies formed by a special Act of Parliament. For example,Reserve Bank of India, The State Bank of India and life Insurance Corporation, the industrial finances corporation,the Unit Trust of India. These are mostly concerned with public utilities,e.g., railways,gas and electricity companies and enterprises of national importance. The provision of the Companies Act,1956 apply to them, If they are not inconsistent with the provision of the special Acts under which they are formed.

iii. Registered Company: Such companies,which are incorporated under Companies Act 1956,or were registered under any previous Companies Act.

2. On the Basis of Liability

i. Limited Company/Company limited by shares: In case of such companies the liability of each member (Shareholder) is limited to the extent of a face value of share held by him.

ii. Company limited by guarantee: It is a registered company in which the liability of members is limited to such amounts as they may respectively undertake by the memorandum to contribute to the assets of the company in the event of its being wound up. In the case of such companies the liability of its members is limited to the amount of guarantee undertaken by them. Clubs, trade associations, research associations and societies for promoting various objects are various examples of guarantee companies.

iii Unlimited company: A company not having a limit on the liability of its members is termed as unlimited company. In case of such a company every member is liable for the debts of the company as in an ordinary partnership in proportion to his interest in the company. Such companies are not popular in India.

3. On the Basis of Number of Members

i. Private company:

(i) Restricts the right to transfer its shares;

(ii) Limits the number of its members to fifty excluding past or present employees of the company who are the members of the company;

(iii) Prohibits any invitation to the public to subscribe for any shares or debentures.

A private company must nave its own Articles of Association which contains the conditions as laid down in Section 3(1)(iii).

ii. Public companyA public company means a company which is not a private company. In other words,a public company means:

  1. Does not restrict the right to transfer its shares. if any;
  2. Does not limit the number of its members;and
  3. Does not prohibit any invitation to the public to subscribe for shares or debentures of the company.

4. On the Basis of Control

i. Holding Company: A company is known as the holding company of another company if it has control over that other company. According to Section 4(4), a company is “deemed to be the holding company of another,but if only,that other is its subsidiary”.

ii. subsidiary Company: A company is known as a subsidiary of another company when control is exercised by the latter over the former,called a subsidiary company. According to Section 4(1),a company is deemed to be a subsidiary of another company in the following three cases:

  1. Company controlling composition of Board Directors.
  2. Holding of majority of shares.
  3. Subsidiary of another subsidiary.

5. On the Basis of Ownership

i. Government Companies: A government company means any company in which at least  51% of the paid-up share capital is held by the central government or by the state government, or partly by the central government and partly by one or more State Government. For example,” State Trading Corporation” of India, and “minerals and Metals Trading Corporation” of India are government companies. The subsidiary of a government company is also a government company.

ii. Foreign Companies: A company incorporated outside India but (a) which had a place of business in India prior to the commencement of the companies Act,1956 and continues to have the same,or (b) which establishes a place of business in India shall be known as a foreign company.

6. Other type of Companies

i. One-man Companies or Family Company: A private company can be formed with two members and a public company with seven. A man may take only one other person with him to constitute the minimum number required in a private company or six other so as to constitute the required seven in a public company. He may keep with himself a substantial number of shares so as to have controlling power over the company. Such a company may be regarded as one-man company. Sometimes,a company may be formed by a person by involving other family members. Such a company can be regarded as a ‘Family Company’.

ii. Multinational Company: Multinational Corporation refers to an organization which is having its headquarters in one country and have business operations in other countries. This means this type of organization will have business across many countries. Some suggest that a multinational organization should be at least operating in 6 countries with minimum of 20% of its business in those countries. For our purpose we will consider a company with business in more than one country as a multinational company. For example: Sandoz India Limited, Hindustan Levers, Richardson Hindustan,Ranbaxy etc.

iii. Charitable or non-profit Making Company: A company may be formed for a charitable or non-profit making objective under section 25 of the Companies Act. Such a company may be registered with a limited liability without requirement of using the word ‘limited’ or ‘private limited’ as a part of its name. The Central Government may issue a license to that effect if it is satisfied that an association:

  1. Is about to be formed as a limited company for promoting commerce,art,science, or any other useful object.
  2. Intends to apply its profits if any or other income in promoting its objects and to prohibit the payment of nay dividend to its members.

Such an association can be registered as a company by complying with all the other requirements of the company Act required for formation of a company.