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Classification of Company
The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and it originally referred to an association of persons who took their meals together. In the leisurely past, merchants took advantage of festive gatherings, to discuss business matters. Nowadays, the business matters have become more complicated and cannot be discussed at festive gatherings.
Therefore, the company form of organization has assumed greater importance. In popular parlance, a company denotes an association of likeminded persons formed for the purpose of carrying on some business or undertaking. A company is a corporate body and a legal person having status and personality distinct and separate from the members constituting it.
Lord Justice Lindley has defined a company as “an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business and who share the profit and loss arising therefrom. The common stock so contributed is denoted in money and is the capital of the company.
The persons who contributed in it or form it, or to whom it belongs, are members. The proportion of capital to which each member is entitled is his “share”. The shares are always transferable although the right to transfer them may be restricted.”
In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company” means a company incorporated under this Act or under any previous company law [Section 2(20)].
Classification of Companies
(i) Classification on the basis of Incorporation: There are three ways in which companies may be incorporated.
- Statutory Companies: These are constituted by a special Act of Parliament or State Legislature. The provisions of the Companies Act, 2013 do not apply to them. Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.
- Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under any previous company law, with Registrar of Companies fall under this category.
(ii) Classification on the basis of Liability: Under this category there are three types of companies:
- Unlimited Liability Companies: In this type of company, the members are liable for the company’s debts in proportion to their respective interests in the company and their liability is unlimited. Such companies may or may not have share capital. They may be either a public company or a private company.
- Companies limited by guarantee: A company that has the liability of its members limited to such amount as the members may respectively undertake, by the memorandum, to contribute to the assets of the company in the event of its being wound-up, is known as a company limited by guarantee. The members of a guarantee company are, in effect, placed in the position of guarantors of the company’s debts up to the agreed amount.
- Companies limited by shares: A company that has the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them is termed as a company limited by shares. For example, a shareholder who has paid `50 on a share of face value ` 100 can be called upon to pay the balance of `50 only. Companies limited by shares are by far the most common and may be either public or private.
(iii) Other Forms of Companies
- Associations not for profit having license under Section 8 of the Companies Act, 2013 or under any previous company law;
- Government Companies;
- Foreign Companies;
- Holding and Subsidiary Companies;
- Associate Companies/Joint Venture Companies
- Investment Companies
- Producer Companies.
- Nidhi Companies
- Dormant Companies
