Kinds Of Companies

What is a Company?

A company is a legal entity established by the group of individuals to employ in and regulate a business firm. A company may be coordinated in different ways for financial liability and tax purposes relying upon the corporate law of its administration. The line of business concern in an enterprise is in, will normally ascertain which business substructure it picks, for instance, a partnership, a corporation or a proprietorship. In such a case, a company may be contemplated as a business kind.

Hence, companies can be classified either on the basis of liability of its core members or on the ground of the total number of members. On the basis of liability of its members the companies can be categorised into 2 categories :

  • Companies Limited by Shares: In this scenario the liability of its members is restricted to the level of the nominal value of shares occupied by them. If a shareholder has paid the complete amount of the shares, there is no liability on his side, whatever may be the debts of the enterprise. He need not pay a single rupee from his private property. However, if there is any liability a part of it, it can be implemented during the presence of the company as well as during the closing up.
  • Unlimited Companies: When there is no constraint on the liability of its shareholders, such company is known as unlimited company. When the company’s property is insufficient to pay off its arrears (debts), the private property of its shareholders can be used. To put it in other words, the creditors can ask for their dues from its shareholders. Such enterprises are not to be found in India though approved by the Section 2 (20) of the Companies Act.

On the basis of the number of shareholders, enterprises can be classified into 3 kinds of companies :

  • Public Company: A public company is an enterprise which :
    • Is not a private company
    • Is a company which is not an ancillary of any of the private company
  • Private Company: A private company is an enterprise, which by its articles :
    • Limits the authority to transfer its shares
    • It must have at least 2 people, apart from the case of one person company
    • Restricts the number of its shareholders to 200 (excluding its employees)
  • One Person Company or OPC : According to Sec.2 (62) of the companies Act, 2013, ‘company which has only 1 person as a shareholder’. Rule number 3 of the Companies (Incorporation) Rules, 2014 says that :
    • Only a natural person who is an Indian citizen and an Indian resident can form 1 person company
    • It cannot execute non-banking financial investment pursuits
    • It is paid up share capital which is not more than ₹ 50 Lakhs
    • Its aggregate annual turnover of 3 years does not cross ₹ 2 Crores

The above mentioned is the concept that is explained in detail about Kinds of Companies for the class 12 Commerce students. To know more, stay tuned to BYJU’S.