A company is a legal entity formed by a group of people to employ and govern a business. Depending on the corporate law of its administration, a company can be coordinated in a variety of ways for financial liability and tax purposes. The nature of a business concern in an enterprise will usually determine which business substructure it chooses, such as a partnership, a corporation, or a sole proprietorship. In this case, a company could be considered a business type.
Company Types for Your Startup
Private Limited Company
The minimum number of members for a Private Limited Company is two, and the maximum number of members at one time is 200. The statutory limit must be followed at all times. Learn about the Private Limited Company in India.
One Person Company
A type of Private Company, One Person Company is abbreviated as OPC. Because of the number of members, OPC is significantly different from other types of companies. At any given time in OPC’s existence, there is only one member. This member must be both an individual and an Indian resident in this case.
There is no maximum number of members in a public company. However, a minimum number of participants is required. A public company must have a minimum of seven members to be registered. Public Companies are those that are listed on the stock exchange. Such companies are able to attract funds from the public through Public Offers (IPO or FPO).
Special Application Company Structures
Company Limited by Shares
In this type of company, the capital is introduced in the form of Shares, which means that the company’s capital is divided into a small portion known as shares. The shares are the shareholder’s interest in the company. The number of equity shares held reflects the shareholder’s stake in the company.
If a capital requirement arises in the company, the shares can be issued for subscription by shareholders. The members’ liability in this type of company is limited to the unpaid capital on the shares subscribed.
Company Limited by Guarantee
A company that is limited by guarantee can be either a private limited company or a public limited company, as long as the capital is not divided into shares. The capital to be introduced by the members is in the nature of a guarantee in this case. The Memorandum subscriber subscribes to the amount guaranteed and signs his or her name against the amount guaranteed. In this case, the percentage of ownership is determined by the amount guaranteed.
Whenever a capital requirement arises, the members introduce the capital to the company. Members’ liability is limited to the amount of guarantee provided. These companies can also issue shares, with shareholders liable up to the amount unpaid on the shares, as discussed above. However, shareholding is not a criterion for determining ownership.
The members’ liability in this type of company is unlimited. In the event of a debt, the members’ liability extends beyond their stake in the company to their personal assets as well. In the current scenario, entrepreneurs are not choosing to incorporate this type of company. The members’ liability arises when the company is wound up or declared bankrupt, or whenever capital is to be raised or debt is to be paid. A company limited by shares is the most common type of company. Companies can be further subdivided into different types, such as private or public companies, based on their nature.
As the name implies, foreigners own foreign companies. When foreign participation in shareholding exceeds 50%, an entity is classified as a foreign company. Businesses registered outside of India find it the most convenient way to establish a presence in India. These companies are registered as an Indian Subsidiary of a foreign company.
Section 8 Company
Because it is registered as a company under Section 8 of the Companies Act, it is referred to as a Section 8 Company. It is registered as a charitable and non-profit organisation. Because it is a Section 8 company, it has a special status and certain exemptions. Let me draw your attention to the fact that special approval from the relevant authorities is required for Section 8 Company Registration.
A producer company is essentially a company that is registered to deal with the primary production of its active members in the farming industry. The primary goal includes everything from production to selling and exporting. A producer company is one that has ten or more members who are producers, or two or more producer institutions, or a combination of the two.
The liability of its members, like that of any other company, is limited to the amount of unpaid share capital by its members. Under this Act, the producer company is deemed to be a private limited company; however, the number of members threshold does not apply to it.
A registered legal entity can be granted the status of a Small Company. It is not necessary to incorporate a new company, but it is a status that it obtains due to its financial position, employee size, and other such factors. A company is considered small if it meets the following criteria:
1- It is not a publicly-traded company
2- Paid-up capital
: not more than fifty lakh rupees
: Not more than two crore rupees, based on the profit and loss statement for the previous fiscal year.
This also does not apply to any holding or subsidiary company, Section 8 company, or company governed by a special Act, finally, Small businesses are exempt from certain compliance requirements under the Companies Act of 2013.
A subsidiary company is one in which another company controls the composition of its Board of Directors or more than half of its voting power. When a single holding company owns 100 per cent of the voting power, the subsidiary is known as the holding’s Wholly Owned Subsidiary (WOS).
A holding company is a company that controls or has a majority of the voting power of another company (subsidiary as referred above). A holding company is also referred to as a parent company.
Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may apply to the Registrar in the manner prescribed for obtaining dormant company status. An inactive company is one that has not carried on any business or operation, has not made any significant accounting transaction in the last two fiscal years, or has not filed financial statements and annual returns in the last two fiscal years.
A government company is defined as any company in which the Central Government, any State Government, or a combination of the Central Government and one or more State Governments owns at least 50% of the share capital.
It also includes a company that is a subsidiary of a government-owned corporation.
(a) The Central Government shall appoint or re-appoint the auditor of a Government Company on the advice of the Comptroller and Auditor General of India. The Auditor-General will have the authority to direct the company’s auditor in the manner of auditing and performing his duties. He shall also have the authority to appoint persons to conduct a supplementary test audit of the company’s accounts; and the auditor is required to submit a copy of his audit report to the Comptroller and Auditor General, who shall have the authority to comment on the report.
(b) Where the Central Government is a member of a Government Company, the Central Government must prepare an annual report on the company’s operations and affairs within three months of the annual general meeting at which the audit report is placed. The annual report, along with a copy of the audit report, is to be laid before both houses of Parliament.
If you are someone who is looking to register a company in India and you are lost in the depths of MCA’s provisions when it comes to all the different types of legal entities you can register, its natural to take a step back and consider what you really require through the registration of your company. Your choices will depend on your requirements, in the end, this is not legal advice and the best person to help you out with this is your lawyer.
Let’s face it, entrepreneurship is difficult as is, with so much at stake, uncertainties, highs and lows, it can get pretty daunting at times. However, once you have your MVP on hand, your team ready, maybe even your first customers served, now you have to register your company and you’re at an utter loss as to what options you’ve got, which company structure should you go for? Well, you’re at the right place. Let’s take a deep dive into the types of companies you can have in India.