An optional association established and organized for running a business is called a company. In other words, any entity engaged in business is a company or a corporation selling goods or services for making money is a company. Legally, a company is a legal entity established by a group of people for performing a business. A company has a separate entity from the people who own, operate and manage its functions.
Types of Companies
Companies can be classified into different types based on different criteria.
Based on Incorporation
- Chartered Company
- Registered Company
- Statutory Company
Based on Liability
- Company Limited by Shares
- Unlimited Company
- Company Limited by Guarantee
Based on the Number of Members
- Private Company/ Private Limited Company
- Public Company/ Public Limited Company
Based on Domicile
- Foreign Company
- Local Company
- Government Company
- Subsidiary and Holding Company
- One Man Company
- Co-operative Society
- Joint Venture Company
Each of the types is discussed below with examples:
Based on Incorporation:
These companies are established under a charter or a special order of a monarch or a king or a queen. A chartered company’s nature and powers of business are specified by the charter which establishes it. Royal Chartered Company is another name of the chartered companies.
Bank of England, East India Company, British Broadcasting Corporation (BBC), etc. are some examples of chartered companies.
All the companies incorporated under the Companies Act passed by the government of the country are known as a registered company. These companies can come into existence after they have registered themselves under the Companies Act and the registrar of companies has granted a certificate of incorporation to them. An incorporated company is another name of the registered companies.
Google India Pvt Ltd is a registered or an incorporated company.
A company incorporated by a special act of the central or state legislature or the parliament is called a statutory company. These companies are designed to run some business of national significance and mostly are invested with obligatory powers.
Federal Reserve Banks of the USA is an example of a statutory company.
Based on Liability
Company Limited by Shares:
These companies have a specified share capital and each member’s liability is limited to the extent if any unpaid on the shares. This liability may be enforced during the company’s existence and while winding up. The members won’t have any liability if the shares are completely paid up.
A company with no limit on its members’/shareholders’ liability is known as an unlimited company. Like an ordinary partnership, every member/shareholder is liable for the company’s debts in proportion to her/his interest in the company. These companies are unpopular in the Indian subcontinent.
Company Limited by Guarantee:
These are registered companies where the members’ liability is limited to the amounts they may respectively promise by the memorandum to contribute to the company’s assets at the time of liquidation. So, the members’ liability is limited to their undertaken guarantee’s amount.
Clubs, research associations, societies for promoting several objects and research associations are some examples of companies limited by guarantee.
Based on Number of Members:
Private Company/ Private Limited Company:
A private company restricts the number of shareholders or members, the transferring right of its shares and refrains from inviting any public to subscribe to any debentures or shares of the company.
In UK, a private company represents a separate legal entity having an address, a suitable name, at least one director, at least one member or shareholder, and article of association and memorandum of association.
In the Indian subcontinent, a private company represents a separate legal entity having an address, a suitable name, at least two shareholders and at most two hundred shareholders, and at least 2 directors one being a resident of the operating country.
Public Company/Public Limited Company:
A company the ownership of which is open to the public is a public company. More clearly, anyone can purchase the shares of this company. No restrictions are here to the number of members or to the transferring right of its shares. But there are few other restrictions:
In UK, a public company should have two directors and at least two shareholders, have total values of allotted shares of at least 50,000 Pound, have a registered company address and have a company secretary who is qualified.
In the Indian subcontinent, a public limited company should have three directors and at least seven members and file a statement in lieu of prospectus or issue a prospectus with the registrar before allotment of shares.
Based on Domicile:
It indicates a company incorporated outside our country and which has a place of business in our country. For example, Unilever, Siemens, Nestle, etc. are foreign companies.
A company registered and formed in a country is called a local company.
A government company is a company where not less than 51% of the paid-up share capital is held by the government. A government company’s subsidiary is also a government company. Federal Agricultural Mortgage Corporation, Corporation for Public Broadcasting, Federal Financing Bank, etc. are some examples of government companies of USA.
Subsidiary and Holding Company:
A company is called a subsidiary of another company when the latter company has a control over the former company and the latter company is called the holding company. For example, ABC Holding Company Inc. is the Subsidiary Company of the Walt Disney Company
One Man Company:
A company where one man holds the full of the company’s share capital and to meet the minimum number of members’ statutory requirement, some dummy members hold 1 or 2 shares each. Generally, these dummy members are the principal shareholder’s nominees. The principal shareholder enjoys the business’s profit with limited liability.
According to Section 4 of the Partnership Act, 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
In the case of banking business on a partnership basis, the maximum member number is 10 and 20 in the case of other businesses. Companies Act, 1994 (Sec.4) has placed this restriction.
Co-operative society indicates a voluntary association of people who perform business together for promoting their common economic purpose. It performs on the principle of both self-help and mutual help. The main motive is to support the members not to earn a profit. CHS Inc., Dairy Farmers of America, HealthPartners Inc., California Dairies Inc. are examples of co-operative societies in the United States.
Joint Venture Company:
Joint Venture Company is two or more persons’ or companies’ association involved in a solitary business company for profit without incorporation or actual partnership. Example: Vodafone & Telefónica works as a joint venture company and shared their mobile network.