India’s vast and diverse business ecosystem reflects the dynamic economic landscape. The legal framework, particularly the Companies Act of 2013, categorizes companies based on several factors such as size, ownership, liability, and control. Understanding these classifications is essential for entrepreneurs, investors, and stakeholders alike.
Additionally, the rise of various types of investment companies in India provides new opportunities for domestic and international investors to engage in the market with the help of a financial advisory, further enhancing the country’s economic landscape.
These companies offer diversified investment options, catering to different financial goals and risk appetites. Understanding market trends, such as what is a bull market and what is a bear market, becomes crucial for investors. A bull market signifies a period of rising asset prices and investor optimism, while a bear market refers to declining prices and negative sentiment. These cycles directly influence investment strategies and decision-making, allowing investors to capitalize on favorable conditions or minimize risks during downturns.
Different Types of Companies in India
It’s important to explore the classification system based on several key parameters.to understand how many types of companies in India, Understanding these classifications helps entrepreneurs and investors choose the structure that best suits their needs and aligns with their business goals.
Types of Companies in India Based on the Number of Members
A. Public Limited Company
A Public Limited Company is one in which shares are offered to the public and can be freely traded on the stock market. There is no cap on the maximum number of shareholders, but a minimum of seven is necessary to establish the company. Public limited companies can raise large capital by issuing shares to the public.
B. Private Limited Company
A Private Limited Company is privately owned, typically by a small group of investors. In this structure, shares are restricted and cannot be publicly traded. The maximum number of shareholders is capped at 200. This type of company is ideal for businesses that want to maintain more control over operations while benefiting from limited liability.
C. One Person Company (OPC)
Introduced to support solo entrepreneurs, an OPC allows a single individual to form a company. The lone shareholder has complete control but enjoys the benefit of limited liability. This format is suitable for small business owners looking to separate personal and business liabilities.
2. Types of Companies in India Based on Liability of Members
A. Company Limited by Shares
In a Company Limited by Shares, the shareholders’ liability is limited to the unpaid portion of their shares. If the company incurs debt, shareholders are only responsible for the unpaid value of their shares, making this structure attractive to those seeking risk limitation.
B. Company Limited by Guarantee
A Company Limited by Guarantee is more common in non-profit settings. Here, members’ liabilities are limited to a specified amount they promise to contribute if the company winds up. These companies often operate with no share capital and are primarily set up for charitable purposes.
C. Unlimited Company
An Unlimited Company offers no restriction on members’ liability. In case of debt, members are fully responsible, and their personal assets can be used to settle the company’s obligations. This type of company is rare and typically used by businesses seeking higher levels of flexibility without the protection of limited liability.
3. Types of Companies in India Based on Size
A. Small Company
A Small Company is defined by the Companies Act as having a paid-up capital of less than ₹4 crore and an annual turnover below ₹40 crore. Small companies enjoy several regulatory benefits such as less stringent filing requirements and simpler auditing processes.
B. Micro Company
Micro Companies are those with investments in plant and machinery not exceeding ₹1 crore and an annual turnover under ₹5 crore. These companies are typically eligible for numerous government schemes and subsidies aimed at promoting micro-enterprises.
C. Medium Company
Medium Companies fall between small and large enterprises, with investments in plant and machinery not exceeding ₹50 crore and turnover under ₹250 crore. These companies benefit from scalable growth and are often in sectors like manufacturing and IT services.
4. Types of Companies in India Based on Control
A. Holding Company
A Holding Company controls another company by owning a majority of its shares. It may not engage directly in production or service delivery but instead derives its power from managing and controlling subsidiary companies.
B. Subsidiary Company
A Subsidiary Company is controlled by another entity, either fully or partially. A company becomes a subsidiary when another company owns more than 50% of its equity shares. When a parent company owns 100% of the shares, it’s referred to as a wholly-owned subsidiary.
5. Types of Companies in India Based on Access to Capital
A. Listed Company
A Listed Company is one whose shares are available for public trading on a stock exchange. These companies must adhere to strict regulatory requirements set by the Securities and Exchange Board of India (SEBI) to protect shareholders’ interests and maintain transparency.
B. Unlisted Company
An Unlisted Company does not trade its shares publicly on a stock exchange. Instead, ownership is typically confined to a small group of investors. While unlisted companies are free from the regulatory burden of public companies, they also miss out on the ability to raise capital from the public.
6. Types of Companies in India Based on Ownership
A. Government Company
A Government Company is one where the central or state government holds at least 51% of the paid-up capital. These companies often function in strategic sectors like energy, infrastructure, and transportation, and their primary goal is to serve public interests.
B. Foreign Company
A Foreign Company is incorporated outside India but operates within the country, either independently or through partnerships. These companies are subject to Indian laws concerning taxation, labor, and business operations but also benefit from international market access.
C. Associate Company
An Associate Company is defined by its significant influence on another company, typically through ownership of 20-50% of shares. This influence allows one company to participate in policymaking and decision-making processes without having complete control over the other.
D. Section 8 Company
A Section 8 Company is a non-profit entity aimed at promoting causes like education, charity, and environmental sustainability. These companies do not distribute profits to their members and operate purely for social welfare. Section 8 companies enjoy several tax benefits and relaxed compliance requirements.
E. Dormant Company
A Dormant Company is a company that is legally registered but inactive. Dormant companies can be used to protect intellectual property, retain a business name for future use, or prepare for future projects. Although dormant, such companies still need to comply with minimal regulatory requirements.
Conclusion
India’s corporate landscape and stock market provides a diverse array of company structures, tailored to meet varying business needs and goals. Whether you’re an entrepreneur forming a one-person company or a corporation planning to list on the stock exchange, understanding company classifications is vital for making informed decisions. Selecting the right structure affects liability, regulatory compliance, funding options, and control. To ensure success, it’s crucial to evaluate your business objectives and seek advice from legal experts or a share market advisory when determining the ideal company type to establish.
FAQs
What is a company and types of companies?
A company is a legal entity created by individuals or groups to engage in business activities. Common types include sole proprietorships, partnerships, and corporations. Sole proprietorships are owned and operated by a single individual, while partnerships involve two or more people sharing ownership and responsibilities. Corporations, as separate legal entities, are owned by shareholders and offer limited liability with potential for growth. For corporations, equity investment management plays a key role in driving expansion and ensuring long-term financial success.
What are the classification of companies?
Companies can be classified based on several factors. By ownership, they can be public, private, or government-owned. Based on liability, they can be corporations (limited liability), partnerships (shared liability), or sole proprietorships (unlimited liability). Additionally, they can be classified by size (small, medium, large), industry (manufacturing, service, etc.), and legal structure (C-corp, S-corp, LLC, etc.).
What is Big 4 companies in India?
The Big 4 refers to the four largest professional services networks globally: Deloitte, EY, KPMG, and PwC. Initially accounting firms, they now offer a wide range of services including auditing, tax, consulting, and advisory. These firms are known for their size, influence, and rigorous professional standards.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
