Discuss the various kinds of companies recognized under the Companies Act, 2013.

kinds company

Discuss the various kinds of companies recognized under the Companies Act, 2013.

Ans. It must be noted that the incorporated companies may be formed in three different ways, namely, (i) Companies incorporated by Royal Charter; (ii) Companies incorporated under the State Legislatures and (iii) Companies incorporated under the Companies Act. These are ‘respectively called the Chartered, Statutory and Registered Companies. The Chartered Companies were formed under the royal charter issued by the British Crown during British Rule in India and have lost their significance in the present time. The Statutory Companies, on the other hand, are formed by an Act of Legislature to carry on a National business while the registered companies arc those business undertakings which are incorporated under the Companies Act, 1956.. However, there may be certain registered companies which are created for non-commercial purposes such as propagation of religion education, charity, etc.

Kinds of Companies – The Companies Act, 2013. provides, for three basic types of companies which may be registered under the Act. They Are:—

1. One Person Company (OPC)

2. Private Company; and

3. Public Company.

These Companies may be:-

1. Company limited by shares;

2: Company limited by guarantee; and

3. Unlimited Company.

1. Companies Limited by Shares- The main attribute of limited companies which attracts the investors is limited liability of share-holders. In other words, liability of a member, in the event of company’s winding up, in respect of the shares held by him, is limited to the extent of the unpaid value of such shares. Thus, the liability does not fluctuate but remains limited to the unpaid amount of the share-holder, whether original or the transferee.

2. Companies Limited by Guarantee- A company limited by guarantee may also be called a Guarantee Company. It is a company wherein the liability of its members extends to the amount undertaken to be contributed by each of them towards the assets of the company in the event of it’s being wound up as stated in the Memorandum of Association of the company. The liability would arise only in the event of the company being wound up and not otherwise.

A guarantee company may or may not have a share capital. In case, it has a share capital, the liability of the members would also extend to the amount remaining unpaid in their shares in addition to the guarantee amount. The voting power of a guarantee company having share capital is determined by the shareholding of the members. However, in case of Guarantee Company not having share capital, every member has only one vote, Vide; CI 14 of Table C, Schedule 1 of the Act. A Guarantee company must suffix the word “Ltd”. Or ‘Pvt. Ltd.’, as the case may be in its name and register its Articles along With the Memorandum. The Memorandum and Articles of a guarantee company not having share capital should be in the form provided in Table C of Schedule 1 of the Act while that of a company having share capital, should be in the Form as provided in Table D.


3. Private Companies- The companies under the first two categories, namely, companies limited by shares and companies limited by guarantee, may be either Private or Public companies.

S.2(68) of the Companies Act, 2013 define a ‘private company’ means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and

(iii) prohibits any imitation to the public to subscribe for any securities of the company;

4. Public Companies-According to S. 2(71) of the Companies Act, a ‘public company’ means a company which is not a private company. “public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:

Provided 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.

In Shyam Nandan Prasad V.s. State of Bihar (1993), the Supreme Court held that a cooperative housing society registered under the Bihar and Orissa Corporative Societies Act, the paid up capital of which is not subscribed to by Government and the Membership of which exceeding fifty is neither a Government company nor a private company but a public company within the meaning of S.3 of the Companies Act.

5. Unlimited Companies- According to Sec. 2(92) “unlimited company” means a company not having any limit on the liability of its members; a company may be incorporated with the unlimited liability. A company having no limit on the liability of its members is termed an unlimited company. An unlimited company must have articles of association stating the number of members and the share capital, if any, with which it is proposed to be registered .The obvious disadvantages of an unlimited company is that its, members are liable, like the partners of a firm, for all its trade debts without any limit. But the creditors cannot sue the members directly. They have to sue the company or resort to winding up and the liquidators may call upon the members to contribute to the assets of the company. The advantages of this are that such a company need not have arty share capital. Even if, it has, it may reduce its capital without any restriction. It may pay back the members and buy their shares.

6. Holding and Subsidiary Companies— Holding and subsidiary companies are relative terms that is, a company is a holding company of another if the other is its subsidiary. According to Sec.2(46) “Holding Company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;

7. Government Companies— According to S.(45) “Government company” means any company in which not less than fifty one per cent. 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 byone or more State Governments, and includes a company which is a subsidiary company of such a Government company;

8. Foreign Companies— According to Sec. 2(42) a foreign company is a company which is incorporated in any country outside India under the law of that country and has aplace of business in India. Foreign companies are of two kinds— (i) Companies incorporated outside India which established a place of business in India after 1.4.1956, and (ii) Companies incorporated outside India which established a place of business in India before that date and continue to have an established place of business in India.

9. Finance Companies (Financial lnstitutions)—A ‘Finance Company’ means a non- banking company, which is a financial institution within the meaning of S.45(1) (c) of the Reserve Bank of India Act,1934. According to this section, a financial institution is a non-banking institution which carries on any of the following activities as its business or part of its business—

(i) The financing , whether by way of making loans or advances or otherwise, or any activity other than its own;

(ii) The acquisition of shares, stocks, bonds, debentures, or securities issued by a Government or a local authority or other marketable securities of similar nature;

(iii) The letting or delivery of any goods to a hirer under a hire purchase agreement as defined in S.2( c)of the Hire- Purchase Act,1972;

(iv) Carrying on any class of insurance business.

(v) Managing, conducting or supervising agency of chits or kuries etc. under the law for the time being in force;

(vi) Collecting money in lump-sump or otherwise, by way of subscription or by sale of units or other instruments or awarding prizes, gifts, whether in cash or kind or disbursing money in any other form to persons from whom money is collected or to any other person.

10. FERA Companies—The companies operating in India under the Foreign Exchange Regulation Act, 1973 are technically called the FERA Companies. Broadly speaking, they fall under the following categories-

1. Indian companies having no foreign interests or having less than 40 per cent interest;

2. Indian companies having more than 40 per cent non-resident interest. Such companies were earlier known as “foreign eiantrolled companies”; and

3. Foreign incorporated companies which are registered in India merely for business operations. The Central Government may impose certain restrictions on FERA Companies U/S. 26 of the Foreign Exchange Regulation Act, 1973.

11. Companies Regulated by Special Acts- The companies which are regulated by Special Acts such as the Banking Companies governed by the Banking Companies Act, 1949;the Insurance Companies governed by the Insurance Act,1938; Electrcity (Supply) Acts 1948; Food Corporation Act,1964 etc. shall have to be incorporated and registered under the Companies Act and the provisions of the Companies Act, 1956 shall, therefore, also apply to them like any other company except in so far as they are inconsistent with the Special Act which constitutes them