Types of Companies
Based on ownership, there are three categories of companies; viz., Private Ltd. Company, Public Ltd. Company, and One Person Company.
1. Private Ltd. Company
According to Section 2(68) of the Indian Companies Act, 2013, a Private Company by its article is a company which:
- Restricts the rights to transfer its shares.
- Has a minimum 2 and a maximum of 200 members, excluding the present and past employees.
- Prohibits any invitation to the public to subscribe for a company’s securities.
2. Public Ltd. Company
A company which is not a private company is a Public Ltd. Company; however, a private company which is a subsidiary of a public company is treated as a public company. According to the Companies Act, a public company is a company which :
- Has minimum 7 members and no limit on the maximum number of members.
- Has no restriction on the transfer of securities.
- Is not prohibited to invite the general public to subscribe to its securities.
A. Company Limited by Guarantee
A company with no shareholders, which is owned by the members, also known as guarantors is known as a Company Limited by Guarantee or a Guarantee Company. The guarantors agree to pay a nominal amount to the company if it gets wound up. This form of business is usually used for non-profit organisations.
B. Company Limited by Shares
A company with members whose liability is limited to the amount unpaid (if any) on the shares held by them is known as a Company Limited by Shares.
3. One Person Company
According to the Companies Act, 2013, apart from a public or private limited company, one can also form a new type of entity, One Person Company (OPC). As per section 3(1) of the Companies Act 2013, a One Person Company is a company which has only one person as its member. Rule 3(1) states that only a natural person who is also an Indian citizen and resident is eligible to incorporate One Person Company.
Besides, an individual cannot incorporate more than one OPC or become a nominee in more than one OPC. Also, if an OPC’s paid-up share capital exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it has to compulsorily convert itself into a public or private company.