Guys, does anyone know the answer?
get explain classification of companies on the basis of liability from screen.
Classification of Companies
Companies are primarily classified into private and public. Private companies or private limited companies are those companies that are closely held and have less than 200 shareholders. Public companies are limited companies that have more than 200 shareholders and are listed on a stock exchange.
Classification of Companies
Post by: Sreeram Viswanath in Private Limited Company
Home » Learn » Private Limited Company » Classification of Companies
Classification of Companies
The Companies Act, 2013, classifies companies based on various features. This article provides a summary of various types of classification of company.
Companies are primarily classified into private and public. Private companies or private limited companies are those companies that are closely-held and have less than 200 shareholders. Public companies are limited companies that have more than 200 shareholders and are listed on a stock exchange.
The 2013 Act has brought with it a new form of a company entitled One Person Company (OPC), which in theory is a private company. As can be deciphered from the name, a One Person Company requires only one member to form it. The person forming an OPC must be a natural person, a citizen of India and an Indian resident during the time of formation. A minor can never be a member or a nominee of a member in OPC. OPC provides an opportunity for the sole proprietors to reap the benefits of limited liability by becoming a corporate entity.
Classification on the Basis of Control
Companies, on the basis of control, are classified as follows:
Holding company. Associate company.
The relationship of holding or subsidiary companies is established either with the control of Board of Directors or control of share capital. A company will be a holding company of another in the following scenarios:
Controls the composition of the Board of Directors of the other company.
Exercises or controls more than 50% of the total share capital either on its own or together with one or more of its subsidiary companies.
If a company has significant influence over another company, the latter will be the Associated Company of the first company. Significant influence is derived either from control of at-least 20% of the total share capital, or of business decisions under an agreement.
Classification on the Basis of Liability
Companies, on the basis of liability, are classified into the following:
Company Limited by Shares
This is the most widespread form of a company. Companies usually have limited liability of members unless specified otherwise in the memorandum (MOA) and articles of association (AOA). In this case, the liability of the members is limited to the extent of face value of shares and premium payable on shares. A limited company can either be a private or public company.
Company Limited by Guarantee
A company limited by guarantee refers to a company having the liability of its members limited by the memorandum to an amount the members may respectively undertake to contribute to the assets of the company in the event of it being wound up.
Unlimited Liability Company
Unlimited Company is a kind of a company which doesn’t have any limit on the liability of its members. The liability of the member’s will not cease until the final payment. Such a company may or may not have a share capital of its own.
Classification on the Basis of Access to Capital
Companies, on the basis of access to capital, are classified as follows.
When the securities of a private or public company aren’t listed on any of the stock exchanges, it is an unlisted company. Such companies cannot raise funds from the public at large by issuing a prospectus. However, an unlisted company may issue shares on Private Placement basis or to raise private equity funding.
A listed company is a kind of a company whose securities are listed on at-least one of the stock exchanges. Such a company must comply with the provisions of listing.
Classification on the Basis of Size
Companies were earlier not classified on the basis of size, but the introduction of “Small Company” back in 2013 prompted the need for this kind of classification. Any company other than a small company is either a mid-size or a large company.
Companies, whose paid-up share capital does not exceed fifty lakh rupees or any prescribed amount not exceeding 5 crore rupees, and its turnover as per its latest profit and loss account is limited to 2 crore rupees or any prescribed amount not exceeding 20 crore rupees, will be considered as a small company. A public company can never be a small company. Likewise, a holding or subsidiary company will not be a small company.
Know more about Small Company under Companies Act, 2013.
Classification on the Basis of Objects
This classification is based on the objective of a firm, which could be profit-oriented or otherwise.
Not for Profit Company
A company whose sole objective is to promote commerce, art, science, sports education, research, social welfare, religion, charity, protection of environment or any other useful purpose and not having any profit motive will be termed as a not-for-profit company. Such a company must apply its profits or other incomes in promoting its objects. It mustn’t make any payment of dividend to its members. Section 8 Company is the only type of company that is a not-for-profit company.
Nidhi companies have been in existence right from the days of yore. Their primary objective is to support the habit of thrift. It was promoted by public spirited men drawn from affluent local persons, lawyers and professionals etc. Please visit this link for details on registering a Nidhi company
Types of Companies
Different types of companies are Companies Limited by Shares, Companies Limited by Guarantee, Unlimited Companies, One Person Companies, Private Companies, Public Companies etc. In this article, we will discuss all the different kinds of companies and their classification.
Intro to Company Accounts
Types of Companies
Company forms of businesses have become immensely popular over the years. Their development has led to the creation of so many new types of companies. Companies are to be classified on the basis of liabilities, members and on the basis of control.Table of content
1 Suggested Videos
2 Types of Companies
2.1 Classification of Different Types of Companies
3 Companies on the Basis of Liabilities
3.1 a) Companies Limited by Shares
3.2 b) Companies Limited by Guarantee
3.3 c) Unlimited Companies
4 Companies on the basis of members
4.1 a) One Person Companies (OPC)
4.2 b) Private Companies
4.3 c) Public Companies
5 Companies on the basis of Control or Holding
5.1 a) Holding and Subsidiary Companies
5.2 b) Associate Companies
6 Companies in terms of Access to Capital
7 Other Types of Companies
7.1 a) Government Companies
7.2 b) Foreign Companies
7.3 c) Charitable Companies (Section 8)
7.4 d) Dormant Companies
7.5 e) Nidhi Companies
7.6 f) Public Financial Institutions
8 Solved example of Types of Companies
Objectives of Business
Levels of Management
Types of Companies
Companies Limited by Shares
Companies Limited by Guarantee
One Person Companies (OPC)
Private Companies Public Companies
Holding and Subsidiary Companies
Companies in terms of Access to Capital
Dormant Companies Nidhi Companies
Public Financial Institutions
We can classify all these companies in various categories.
Classification of Different Types of Companies
Companies on the Basis of Liabilities
When we look at the liabilities of members, companies can be limited by shares, limited by guarantee or simply unlimited.
a) Companies Limited by Shares
Sometimes, shareholders of some companies might not pay the entire value of their shares in one go. In these companies, the liabilities of members is limited to the extent of the amount not paid by them on their shares.
This means that in case of winding up, members will be liable only until they pay the remaining amount of their shares.
Learn more about Multinational Companies here in detail.
b) Companies Limited by Guarantee
In some companies, the memorandum of association mentions amounts of money that some members guarantee to pay.
In case of winding up, they will be liable only to pay only the amount so guaranteed. The company or its creditors cannot compel them to pay any more money.
c) Unlimited Companies
Unlimited companies have no limits on their members’ liabilities. Hence, the company can use all personal assets of shareholders to meet its debts while winding up. Their liabilities will extend to the company’s entire debt.
Learn more about Small Scale Industries here in detail.
Companies on the basis of members
a) One Person Companies (OPC)
These kinds of companies have only one member as their sole shareholder. They are separate from sole proprietorships because OPCs are legal entities distinct from their sole members. Unlike other companies, OPCs don’t need to have any minimum share capital.
b) Private Companies
Private companies are those whose articles of association restrict free transferability of shares. In terms of members, private companies need to have a minimum of 2 and a maximum of 200. These members include present and former employees who also hold shares.
c) Public Companies
In contrast to private companies, public companies allow their members to freely transfer their shares to others. Secondly, they need to have a minimum of 7 members, but the maximum number of members they can have is unlimited.
Companies on the basis of Control or Holding
In terms of control, there are two types of companies.
a) Holding and Subsidiary Companies
In some cases, a company’s shares might be held fully or partly by another company. Here, the company owning these shares becomes the holding or parent company. Likewise, the company whose shares the parent company owns becomes its subsidiary company.
Holding companies exercise control over their subsidiaries by dictating the composition of their board of directors. Furthermore, parent companies also exercise control by owning more than 50% of their subsidiary companies’ shares.
b) Associate Companies
Associate companies are those in which other companies have significant influence. This “significant influence” amounts to ownership of at least 20% shares of the associate company.
The other company’s control can exist in terms of the associate company’s business decisions under an agreement. Associate companies can also exist under joint venture agreements.
Classification of Companies under the Companies Act of India, 2013
The Indian economy has a variety of classification of companies existing in its market such as public companies, private companies, LLC etc.
Image Source: https://bit.ly/3982MLK
Table of Contents
The Indian economy has a variety of companies existing in its market such as public companies, private companies, investment companies, limited liability companies etc. These numerous entities in the market may look different from each other on the surface, but based upon certain identifiable common characteristics they can be grouped into below-mentioned classifications. This article aims to draw your attention towards the conventional classification of the companies that are made based upon factors such as liability, control, incorporation, transferability of shares etc.
Classification of Companies
The companies may be classified based upon the mode of their incorporation and incorporation process which is defined under Section 7 of the Companies Act, 2013.
Incorporation is the day when the company acquires a legal identity i.e. the day when a company takes birth in the eyes of law. Section 2 of the Companies Act, 2013 defines the various kinds of companies and their facets.
(I) Classification of Companies on the basis of incorporation
Royal Charter Company
It may be better understood as the company born out of the authorization of the sovereign or the crown. This was the mode of incorporation which was followed earlier to the Registration under the Companies Act. A charter is granted by the crown to the people requesting to form a cooperative or a company. To name a few, The Bank of England (1694), The East India Company (1600) were formed by the means of charters passed by the then Crown of England. The authorization given by the sovereign gives legal existence to these companies by means of the body of the charter. This mode of incorporation is no more recognised in any Companies Act to incorporate new Companies.
As the name suggests, these are the companies that are formed by the means of a special statute passed by the Parliament or the State Legislature. The examples of statutory companies in India are the Reserve bank of India, the Life Insurance Corporation of India Act, etc.
The Statutory origins of these companies provide power to such companies to be bound by their own statute, i.e. whenever there is any dispute between statute under which these companies were formed and the Companies Act 2013, the statute being special legislation persists over the general law of Companies Act. The parliaments both State and Centre are empowered to make such legislation for incorporation under the power endowed to them by the Constitution of India.
As defined under Section 2(20) of the Companies Act, 2013, registered companies are the companies which get registered under the statute of the Companies Act. Companies are also provided with a certificate of incorporation by the Registrar of the Company.
(II) Classification of Companies on the basis of liability of members
The liability upon the members is also used to classify the companies, it describes the limit to which member will be liable if such liability were to befall upon the company. On the basis of liability of the members, the companies may be classified into:
Companies limited by shares:
These types of companies are mentioned in Section 2(22) of the Companies Act, 2013. The liability of the members of such a company is based upon the number of shares kept unpaid. This liability against the shares kept may be brought to the authority. Once the payment towards the security is made by the shareholder or member then no liability beyond that is placed upon such member. The liability may be enforced during the company’s existence and even during its winding-up process.
Companies limited by guarantee
These types of companies are mentioned in Section 2(21) of the Companies Act, 2013. In a Company where the liability is limited by guarantee, it means the member of the Company has agreed on the Memorandum of Association to repay the same amount during winding up of such Company. In such companies, the liability of the members is limited to the undertaking given by them. Trust research associations, etc. are examples of companies liability limited by guarantee.
Unlimited Liability Company
These companies as defined under Section 2(92) of the Companies Act, 2013 do not have a cap on the amount of liability that may add on their members in case the company has to repay any debt. For any amount that the company owes these members, the unlimited liability company shall be liable to the extent of their interest in the company. These companies do not draw any popularity when it comes to Indian Market.
Difference between limited and unlimited companiesLimited liability companyUnlimited liability company
Liability of the members is only in proportion to the sum they have invested in the company.
Liability of the members is not in proportion to the investment in their company.