Types of Companies in India
In India, companies can be classified into three main types, each with its own set of characteristics and legal requirements:
1. One Person Company (OPC):
A One Person Company is a unique type of company that is designed to be owned and operated by a single individual. According to Section 2(62) of the Companies Act, 2013, a One Person Company is defined as a company that has only one person as its member.
There are certain rules governing the formation of OPCs:
(i)Only a natural person who is an Indian citizen and resident in India can form an OPC or be a nominee for the sole member of an OPC.
(ii)A person can only form one OPC or become a nominee for one such company.
(iii)OPCs cannot be formed for charitable purposes.
(iv)They are not allowed to carry out Non-Banking financial Investment activities, including investments in securities of any body corporate.
(v)The Paid-up Share Capital of an OPC cannot exceed ₹50 lakhs.
(vi)The average annual turnover of three years should not exceed ₹2 crores.
An OPC should have at least one director but no more than 15 directors.
2. Private Company:
A Private Company is a type of company that is privately held and typically has a limited number of shareholders. The Companies Act, 2013 defines a Private Company as one that:
(i)Has a minimum paid-up share capital as prescribed* and includes certain restrictions in its Articles of Association:
(ii)Restricts the right to transfer its shares, if any.
(iii)Limits the number of members to 200 (excluding present or past employee members) unless it's a One Person Company.
(iv) Prohibits any invitation to the public to subscribe to its securities.
The name of a Private Company ends with the words "Private Limited".
*As per the notification dated 26 July 2023, companies are not required to have a minimum paid-up capital.
3. Public Company:
A Public Company is a type of company that offers its shares to the general public for subscription and is not classified as a Private Company.
(i)To be a Public Company, it must have a minimum paid-up share capital as prescribed* .
(ii)Unlike Private Companies, there is no restriction on the maximum number of members in a Public Company.
(iii) The name of a Public Company ends with the word "Limited".
* Again, as per the notification dated 26 July 2023, companies are not required to have a minimum paid-up capital.
Types of Companies based on Liability:
Apart from the classification based on ownership structure, companies can also be categorized based on the liability of their members:
1. Limited Liability Company or Company Limited by Shares:
A Limited Liability Company (LLC) or Company Limited by Shares is a company in which the liability of its members is limited by the number of shares they hold. If the company faces financial difficulties or gets into debt, the shareholders' liability is limited to the amount unpaid on their shares.
2. Unlimited Liability Company:
In an Unlimited Liability Company, the liability of its members is not limited to the amount of their shares. In the event of the company winding up with debts, the personal assets of the members may be used to settle the company's obligations.
3. Company Limited by Guarantee:
A Company Limited by Guarantee is a company in which the liability of its members is limited to a specific amount that they undertake to contribute to the assets of the company in the event of its winding up.
In conclusion, understanding the different types of companies and their specific characteristics is essential for entrepreneurs and investors looking to start or invest in businesses in India. Each type of company comes with its advantages, legal requirements, and liability implications, so it's crucial to make an informed decision based on the specific needs and objectives of the business.
