Kinds of Company — Company Law Notes

Kinds of Company

When India rewrote its company law in 2013, it added a brand-new species that did not exist under the 1956 Act: the One Person Company, letting a single entrepreneur enjoy limited liability without needing to rope in a token second shareholder. The law’s zoo of company-types keeps growing to fit new needs.

The kinds, sorted three ways

Companies are classified on three cross-cutting bases. Keep them separate in your head — a single company can be “public” and “limited by shares” and “a holding company” at the same time.

A. On the basis of incorporation. (For completeness — the Act deals only with the last.)

• Chartered companies — created by royal charter (e.g. the old East India Company); obsolete in India.
• Statutory companies — created by a special Act of Parliament/legislature (RBI, LIC).
• Registered companies — formed by registration under the Companies Act. This is what “company” means today.

B. On the basis of liability (s.2 read with s.3).

• Company limited by shares — a member’s liability is limited to the amount unpaid on his shares. The commonest form.
• Company limited by guarantee — members agree to contribute a fixed guaranteed amount only if the company is wound up; used by clubs, NGOs, trade bodies.
• Unlimited company — members have unlimited liability, like partners; rare.

C. On the basis of members / control.

• Private company (s.2(68)) — restricts the right to transfer its shares, limits members to 200 (excluding employees), and prohibits any invitation to the public to subscribe. Minimum 2 members, 2 directors.
• Public company (s.2(71)) — any company that is not private; it may invite the public to buy its shares. Minimum 7 members, 3 directors.
• One Person Company — OPC (s.2(62)) — a private company with just one member, who names a nominee to take over on his death. India’s newest form.
• Small company (s.2(85)) — a private company below prescribed capital/turnover limits; gets relaxed compliance.
• Government company (s.2(45)) — one in which at least 51% of the paid-up share capital is held by the Central and/or State Government.
• Foreign company (s.2(42)) — incorporated outside India but having a place of business in India.
• Holding & subsidiary companies (s.2(46), s.2(87)) — a holding company controls another (the subsidiary) by controlling its Board or more than half its voting power. A parent-and-child pair.
• Associate company (s.2(6)) — one in which another has “significant influence” (≥20% voting power).
• Listed company (s.2(52)) — whose securities are listed on a recognised stock exchange.

Section 2(68): a private company is one which “restricts the right to transfer its shares… limits the number of its members to two hundred… [and] prohibits any invitation to the public to subscribe for any securities.”

In Simple Terms: A private company is a closed family shop — few members, no public money, shares not freely sold. A public company is an open bazaar — anyone can buy in, shares change hands freely.

flowchart TD
    ROOT["Kinds of Company"]:::root
    ROOT --> L["By liability"]:::mid
    ROOT --> M["By members / control"]:::mid
    L --> L1["Limited by shares"]:::leaf
    L --> L2["Limited by guarantee"]:::leaf
    L --> L3["Unlimited"]:::leaf
    M --> M1["Private (2-200)"]:::leaf
    M --> M2["Public (min 7)"]:::leaf
    M --> M3["OPC (1 member)"]:::leaf
    M --> M4["Government (51%)"]:::leaf
    M --> M5["Holding & subsidiary"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef mid fill:#FDE8D0,stroke:#92400E,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

💡 EXAM TIP — private vs public in one table

The trap. Candidates describe “private company” in vague words and lose the marks that come from the three numbers.

What to write. Private: transfer restricted · members 2–200 · no public invitation · min 2 members/2 directors. Public: not private · public invitation allowed · min 7 members/3 directors.

Why it scores. The examiner is testing whether you know the statutory dividing lines (s.2(68)/s.2(71)), not the general idea.

Case Laws

• State Trading Corporation of India v CTO (1963) — a government company is still a separate juristic person, not the “State” as a citizen.

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