Types of Company
Chapter Thirty-Eight
Syllabus topic 1, "Meaning of Company, Types of Company, Maintenance of Books of Accounts"
Pages 114 to 116 of 168
In one line
The Act classifies companies by liability, by membership, by control and by incorporation, and a single company carries one label from each.
The four bases
| Basis | The classes | Where |
|---|---|---|
| Liability of members | Limited by shares, limited by guarantee, unlimited | Section 3(2), with 2(22) and 2(21) |
| Number of members and public access | Private, public, One Person Company | Sections 2(68), 2(71), 2(62) |
| Control | Holding, subsidiary, associate, Government company | Sections 2(46), 2(87), 2(6), 2(45) |
| Place of incorporation | Indian company, foreign company | Section 2(42) |
And one class that cuts across the others: the small company, section 2(85), which is a size test, not a fourth basis.
By liability
Section 3(2) says a company formed under section 3(1) may be limited by shares, limited by guarantee, or unlimited.
| Type | Definition | The member's exposure |
|---|---|---|
| Limited by shares, s.2(22) | Liability limited by the memorandum to the amount, if any, unpaid on the shares held | Nothing beyond the unpaid call; a fully paid share carries no exposure at all |
| Limited by guarantee, s.2(21) | Liability limited by the memorandum to such amount as the members undertake to contribute to the assets in the event of winding up | Nothing while it trades; the guaranteed amount only if it is wound up |
| Unlimited | Neither limit applies | The members' liability is unlimited |
The distinction to hold: a shareholder's liability can be called at any time while the company trades, because the company can call the unpaid amount. A guarantor's cannot, because the undertaking bites only on winding up. Companies limited by guarantee are the usual form for clubs, chambers and educational bodies, which have no share capital to call.
By membership
Private company, section 2(68). A company which by its articles:
- restricts the right to transfer its shares;
- limits the number of members to two hundred, not counting present and former employees who are members; and
- prohibits any invitation to the public to subscribe for its securities.
Joint holders count as one member for the two hundred.
Public company, section 2(71). A company which is not a private company and has a minimum paid-up share capital as may be prescribed. And the tail of the clause, which examiners like: a private company that is a subsidiary of a public company is deemed to be a public company even though its articles carry the private company restrictions.
One Person Company, section 2(62). A company which has only one person as a member. Section 3(1)(c) says an OPC is a private company, and the proviso to section 3(1) requires its memorandum to name another person, with prior written consent, who becomes the member on the subscriber's death or incapacity.
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