Kinds of Companies

Kinds of Companies

Companies can be classified either on the basis of number of members or on the basis of the liability of its members. Companies can be classified into three types of companies on the basis of liability of its members:

i. Companies Limited by Shares

In this case, the liability of a company’s members is limited to the extent of nominal value of shares purchased by them. Because members/shareholders paid the full value of the shares, there is no liability at their part. They do not need to pay any amount from their own property. If any liability involved, it can be received by the company during the existence of the company as well as during the insolvency or winding up.

ii. Companies Limited by Guarantee

This case refers to the liability of its members, which is limited to the nominal amount they committed to contribute in the event of company’s being wrapping up. Thus the liability of its members will arise only in the event of its wrapping up.

iii. Unlimited Companies

In this type of companies there is no limit on liability of its members. Private assets and property of the members can be used to pay off the debts of the company when there are no sufficient funds in the company. We can say, creditors of the company can claim their due payments from members. These types of companies are not found in India. 

There are three categories of the company on the basis of the number of the members

i. Public Company

A public company means a company which is not a subsidiary of a private company or not a private company. In a public company ownership is distributed amongst general public shareholders. Trade of these shares can be done through free trade of shares of stock on exchanges or through the counter markets.

ii. Private Company

A private company cannot offer or trade its shares to the public for sale and restrict the right to transfer of its shares. This type of company must have at least two persons, except in case of one Person Company. According to section 2(68) of the Companies Act, 2013, private companies can have maximum of 200 members except for one person companies. This does not include any present and former employees of the company who are also members. private companies need to add “Private Limited” or “Pvt Ltd” in their names.

iii. One Person Company

According to section 2 (67) of the companies act, 2013 definition of One Person Company is “A company which has only one person as a member”. Rule 3 of the Companies (Incorporation) Rules, 2014 says that only a natural person who is an Indian citizen and resident in India can form One Person Company (OPC) which cannot carry out non-banking financial investment activities. Its annual turnover of three years does not exceed upto average of Rupees2 Crores and paid up share capital is not more than rupees 50 Lakhs.

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