Kinds of companies

Introduction

According to Sec. 2 (20) of The Companies Act, 2013, a “company” means a company incorporated under The Companies Act, 2013 or under any previous company law.

The Indian Companies Act, 2013 has replaced the Indian Companies Act, 1956. The Companies Act, 2013 makes the provisions to govern all listed and unlisted companies in the country. The Companies Act 2013 implemented many new sections and repealed the relevant corresponding sections of the Companies Act 1956. This is a landmark legislation with far-reaching consequences on all companies incorporated in India.

 

Classification of companies:

On the basis of size or number of members in a company:

Private Company:

According to section 2(68) of the Companies Act, 2013 (as amended in 2015), “private company”  is essentially defined as a company having a minimum paid-up share capital as may be prescribed, and which by its articles, restricts the right to transfer its shares. A private company must add the word “Private” in its name. It can have a maximum of 200 members.

 

Public Company

Section 2(71) of the Companies Act, 2013 (as amended in 2015), defines a “public company”. A public company must have a minimum of seven members and there is no restriction on the maximum number of members. A public company having limited liability must add the word “Limited” at the end of name. The shares of a public company are freely transferable.

 

One Person Company:

The Companies Act, 2013 also provides for a new type of business entity in the form of a company in which only one person makes the entire company. It is like a one man- army. Under section 2(62), One Person Company (OPC) means a company which has only one person as a member.

 

On the basis of control, we find the following two main types of companies:

Holding Company:

Such type of company directly or indirectly, via another company, either holds more than half of the equity share capital of another company or controls the composition of the Board of Directors of another company.

A company can become the holding company of another company in any of the following ways: 

  • by holding more than 50% of the issued equity capital of the company,
  • by holding more than 50% of the voting rights in the company,
  • by holding the right to appoint the majority of the directors of the company.

Subsidiary Company:

A company, which operates its business under the control of another (holding) company, is known as a subsidiary company. Examples are Tata Capital, a wholly-owned subsidiary of Tata Sons Limited.

On the Basis of Ownership, companies can be divided into two categories:

Government Company:

“Government company”under Section 2(45) of the Companies Act, 2013 is essentially defined as, that company in which equal to or more than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments (more than one state’s government), or partly by the Central Government and partly by one or more State Governments, and includes the company, which is a subsidiary company of such a Government company.

A government company gives its annual reports which have to be tabled in both houses of the Parliament and state legislature, as per the nature of ownership.

Some examples of government company are National Thermal Power Corporation Limited (NTPC), Bharat Heavy Electricals Limited (BHEL), etc.

 

Non-Government Company:

All other companies, except the Government Companies, are known as Non-Government Companies. They do not possess the features of a government company as stated above.

 

Associate companies

The provisions of Section 2 (6) of the Companies Act, 2013 and the Rule 2 of Companies (Specification of definitions details) Rules, 2014, essentially explains (defines) “associate company” as;

For companies say X and Y, X in relation to Y, where y has a significant influence over X, but X is not a subsidiary of y and includes joint venture company. Here X is an associate company. Wherein;

  1. 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.
  2. The expression, “joint venture” means a joint agreement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

When a company under which some other company holds either 20% or more of share capital, then they shall be known as Associate Company.

If in case a company is formed by two separate companies and each such company holds 20% of the shareholding then the new company shall be known as Associate Company or Joint Venture Company. The Companies Act 2013 for the first time had introduced the concept of the Associate Company or Joint Venture Company in India through section 2(6). A company must have a direct shareholding of more than 20% and indirect one is not allowed.

For example, A holds 22% in B and B holds 30% in C. In this case, C company is an associate of B but not of A.

 

Foreign companies

A foreign company, as per The Companies Act, 2013 means a company or a corporate body which is incorporated outside India which either has a place of business in India whether by itself or through an agent, either physically or through an electronic mode and conduct any business activity in India in any other manner.”

Holding company and subsidiary company

Section 2 (46) of The Companies Act, 2013 defines holding company as, “Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies”.

According to Section 2 (87) of The Companies Act, 2013;

“Subsidiary company or subsidiary in with respect to any other company (that is to say the holding company), means a company in which, either the holding company controls the composition of the Board of Directors or exercises/controls more than half of the total share capital either on its own or together with one or more than one 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.

Conclusion

Companies Act is required because it provides for class action suits for shareholders which means that The Companies Act, 2013 narrates concept of class actions suits in order to make shareholders and other stakeholders, more informed and knowledgeable about their rights.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

Do follow me on FacebookTwitter  Youtube and Instagram.

The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

We are also running a series Inspirational Women from January 2021 to March 31,2021, featuring around 1000 stories about Indian Women, who changed the world. #choosetochallenge

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.