Classification of Companies

Classification of Companies

A company may be classified on the

following basis:

Modes of incorporation;

Extent of the liability of the members;

Number of members;

Basis of ownership;

Extent of public participation; and

Basis of Nationality.

On the basis of Incorporation(1) Incorporated Companies: It means a

company registered under the Indian Companies Act. Companies incorporated by Royal Charter:

This system of formation of companies was in the practices under the British Govt. Now-a-days this is not in practice. Example “The East India Company”

Companies incorporated by Special Act of Parliament: Sometimes a company may also be incorporated by a Special Act of Parliament for the fulfillment of some special objects at the National level. Examples are : The Reserve Bank of India, State Bank of India, IDBI etc.

Companies incorporated under Indian Companies Act: Generally, all the companies in India are formed under the Indian Companies Act, 1956. Such a company is regulated and controlled by its memorandum of association and articles of association. As the charter company has no place in India since independence and the Indian Companies Act do not apply to a corporation, the word 'Company' will always mean a company registered under the act.

(2) Un-incorporated Companies: A group of persons which is not registered under Indian Companies Act is known as Un-incorporated Company.

On the basis of Liability

Limited Liability Companies: In this type of companies, the liability of members is limited. All such companies will have to use the word 'LIMITED' with their name.

(i) Companies limited by shares: The

liability of the members of such company is limited up to the face value of the shares they held.

(ii) Companies limited by guarantee: Section 12 (2) (b) of the Indian Companies Act defines as, "A company having the liability of its members limited by its memorandum to such amount as the members respectively thereby undertake to contribute to the assets of the company in the event of its being wound up."

Therefore, the liability of the members of such a company remains limited to the amount they agree to contribute to the company, if the need may be. This amount of guarantee cannot be demanded from the members until company is wound up, therefore, this amount is known as ‘Reserve Capital'.

Unlimited Companies: Section 12 (2) (c) of the Companies Act states that a company having unlimited liability of its members, is called unlimited liability company. In this type of companies the liability of member of such a company is liable to contribute any amount in proportion to his interest in the company towards the liabilities of the company. It should be noted that the liability of member can be enforced only at the time of the winding up.

On the basis of No of Members

• Public Company: A public company is a company which is registered under the Indian Companies Act 1956 or an existing company, having 7 or more members.

• As per amended Section 3 (i) (iv) of the Companies Act 1956, A public company means a company which• Which is not a private company, • Has a minimum paid-up capital of 5 lakh rupees or

such higher paid-up capital, as may be prescribed• Is a private company which is a subsidiary of a

public company.Thus, a public company is one that is not a

private company

• Private Company: Section 3 (i) (iii) of the Indian Companies Act, 1956 defines a Private Company as,

"A private company is a company which by its articles:– restricts the rights to transfer its shares, – limits the number of its members to 50,

and– prohibits any invitation to the public to

subscribe for its "shares or debentures.“

On the basis of OwnershipGovernment Company: "Any company of

which not less than 51 percent of the share capital is held- by the central government or state government or by any two or more of them together shall be Government Company." These companies function in the same manner as other companies, with the difference of ownership.

(2) Non-Government Company: A Non-government company is a company which is not a government company.

On the basis of IndependenceIndependent Unit: An Independent Company

is a company which performs its entire works independently. Such a company neither controls any other company nor it is controlled by any other company.

Subsidiary Company: Section 4 (i) of the Companies Act states that a company is a Subsidiary Company of another where the Holding Company : Controls the composition of its board of

directors, or Holds more than half in the nominal value of

its equity share capital.

Holding Company: Section 4 of the Act states that a company may be termed as Holding Company if it has any company as its subsidiary.

On the basis if Nationality

Inland Companies: An Inland Company is a company which is formed, regulated and controlled by any of the Companies Act, of India.

Foreign Companies: Section 591 of the Indian Companies Act, 1956 state that a Foreign Company means a company which is established outside India, but the company is doing its business in India.