Types of Companies in India

India's economy thrives on the contributions of a different array of companies, which play a crucial role in both domestic and international development. From the bustling streets of Mumbai to the innovative tech hubs of Bangalore, businesses of all sizes and sectors are integral to the Indian landscape.

The Companies Act of 2013 governs the incorporation, operation, management, and dissolution of companies in India, establishing a framework for regulatory compliance. If you are considering starting your own business, it is essential to understand the various types of companies available, each with different legal structures. 

In this blog, we will delve into the different classifications of companies in India, exploring their characteristics of size, liability, and listing status, among other dimensions.

Types of Company in Company Law 

Let us explore types of companies based on members, size, liabilities, listing, and holding.

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Types of Companies Based on Members

1) Private Ltd Company: 

A Private Limited Company is a type of business structure that limits shareholder liability. It restricts the number of shareholders and does not allow public trading of shares. This structure provides flexibility in management and is suitable for small to medium-sized businesses. Shareholders can only sell shares with the approval of other shareholders. Compliance with regulatory requirements is necessary but less stringent than that of public companies.

2) One-Person Company

A One-Person Company (OPC) is a business entity owned and managed by a single individual. It combines the benefits of a sole proprietorship with the limited liability of a company, protecting the owner's assets. OPCs are ideal for solo entrepreneurs looking for a formal structure while maintaining full control. 

3) Public Ltd Company

A Public Limited Company allows shares to be offered to the general public and traded on stock exchanges. It requires a minimum of 3 directors and a minimum share capital, often subject to more stringent regulatory compliance. PLCs can raise significant capital through public offerings, making them suitable for large businesses. 

4) Section 8 Company

A Section 8 Company is a non-profit organization registered under the Companies Act, aimed at promoting social objectives rather than making profits. It can be formed by individuals or groups who want to work for charitable purposes, including NGOs, charitable trusts, and other social enterprises. This type of company enjoys certain tax benefits and exemptions. It cannot distribute profits to its members but can reinvest them to achieve its objectives.

Types of Companies Based on Size

In India, companies are classified by their size, which is usually based on factors like their revenue, investment, and number of employees. Here are the main types of companies in India based on size: 

Micro Enterprises: Micro-enterprises are the smallest type of businesses. In India, they are defined as companies with investments up to ₹1 crore in manufacturing and an annual turnover of up to ₹5 crore.

Small Enterprises: Small enterprises are larger than micro-enterprises but still part of the small-scale sector. In India, they have investments of up to ₹10 crore and an annual turnover of up to ₹50 crore.

Medium Enterprises: Medium enterprises are defined with investments of over ₹50 crore in manufacturing and an annual turnover of up to ₹250 crore.

Large Enterprises: Large enterprises are the biggest type of businesses. In India, they have investments exceeding ₹50 crore in manufacturing or ₹250 crore in services. These companies often have many employees and operate nationally or internationally.

These categories are set by the Ministry of Micro, Small, and Medium Enterprises (MSME) in India to help smaller businesses get benefits like loans, subsidies, tax breaks, and easier access to government programs.

Types of Companies Based on Liabilities

Companies can be grouped based on how much responsibility their owners or members have for the company’s debts. Here are the types of companies based on liability:

Company Limited by Shares

In a company limited by shares, the owners' responsibility for the company's debts is limited to the amount they owe on their shares. In other words, shareholders are not personally responsible for any company debt beyond what they have agreed to pay for their shares.

Depending on the number of shareholders and other factors, this type of company can be divided into two types: private limited companies and public limited companies.

Company Limited by Guarantee

In a company limited by guarantee, the owners’ liability is limited to the amount they promise to contribute if the company is closed. These companies are usually used by non-profits, societies, and other organizations.

Unlimited Liability Company

In an unlimited liability company, the owners have no limit on their responsibility for the company’s debts. If the company owes money, the owners can be forced to use their assets (like their home or savings) to pay off the company’s debts.

Types of Companies Based on Listing Status 

Companies can also be classified based on their listing status, which indicates whether their shares are publicly traded on a stock exchange. 

1. Listed Companies

Listed companies are those whose shares are available for buying and selling on a stock exchange, like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India.

These companies have to follow strict rules and regulations set by the Securities and Exchange Board of India (SEBI). Being listed helps these companies raise money by selling shares to the public and gives shareholders the ability to easily sell their shares.

2. Unlisted Companies

Unlisted companies are those whose shares are not traded on a stock exchange. These companies are usually privately owned, meaning only a small group of people or investors own the shares.

Unlisted companies do not have to follow the same strict rules as listed companies, but they still have to meet certain legal requirements under the Companies Act. 

Types of Companies Based on Holding

Companies can be grouped based on their ownership structure, which describes the connection between a main company and any companies it controls. Here are the main types:

Parent Company

A parent company owns a major share (usually more than 50%) of another company and has the authority to make important decisions. It oversees the direction and key operations of its subsidiary companies.

Subsidiary Company

A subsidiary is a company that is controlled by a parent company, which owns either all or a large part of it. Subsidiaries operate independently but are influenced by the parent company’s decisions.

Holding Company

A holding company exists mainly to own shares in other companies rather than to operate a business itself. Its role is to manage its investments and sometimes offer guidance and financial support to the companies it owns. Unlike a parent company, it doesn’t directly run any business activities.

Affiliate Company

An affiliate is a company connected to another company through shared ownership or control. Affiliates are often part of the same corporate group or have a partnership but are still separate businesses.

Associate Company

An associate company is one where another company holds a significant share, usually between 20% to 50%, giving it influence but not full control. The investing company can impact its operations but does not make all the decisions.

Conclusion
For anyone considering starting a business in India, understanding the different types of companies is essential. Each type comes with distinct advantages and limitations, shaped by factors such as membership, liability, size, control, access to capital, and ownership. These classifications provide a clear framework for structuring businesses effectively.