Different Types of Companies in India

The Indian economy is driven by many companies contributing to its growth and development. These companies vary in size, ownership, control, and access to capital, reflecting the country’s diverse corporate landscape. However, companies must be categorized to promote effective corporate governance.

In this blog, we will discuss the types of companies based on size, number of members, control, liability, and access to capital.

What is a Company?

A company is a legal entity formed by a group of individuals to engage in and operate a business or enterprise. It is a separate legal entity from its owners, meaning it can own assets, incur liabilities, enter into contracts, sue, and be sued. It has perpetual succession, a common seal, and is subject to statutory compliance. The purpose of the companies is generally to generate profit for their owners, although some, like Section 8 Companies, may be formed for charitable or social purposes. 

List of Different Types of Companies in India

Here’s a detailed categorization of Indian companies based on size, number of members, control, liability, and access to capital,  as per the Companies Act, 2013:

The MSME Act classifies companies based on their size to give benefits the government provides for MSMEs. 

1. Categorization Based on Size

Based on the size, companies can be categorized as:

Micro, Small, and Medium Enterprises (MSMEs):

Companies are categorized based on size under the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, but often referenced in the context of companies under the Companies Act.

Micro Enterprises:

• Investment: Up to ₹1 crore.
• Annual Turnover: Up to ₹5 crore.

Small Enterprises:

• Investment: Between ₹1 crore and ₹10 crore.
• Annual Turnover: Between ₹5 crore and ₹50 crore.

Medium Enterprises:

• Investment: Between ₹10 crore and ₹50 crore.
• Annual Turnover: Between ₹50 crore and ₹250 crore.

2. Categorization Based on Number of Members

Based on the number of members, companies can be categorized as:

One Person Company (OPC):

• Definition: Under Section 2(62) of the Companies Act, 2013.
• Members: One individual is the sole member.
• Characteristics: The OPC allows a single entrepreneur to start and manage a company with limited liability, with provisions for a nominee in case of the sole member’s death or incapacity.

Private Limited Company:

• Definition: Under Section 2(68) of the Companies Act, 2013.
• Members: Minimum of 2 members, maximum of 200.
• Characteristics: Shares are not freely transferable, and the company cannot invite the public to subscribe to its shares.

Public Limited Company:

• Definition: Under Section 2(71) of the Companies Act, 2013.
• Members: Minimum of 7 members, no maximum limit.
• Characteristics: Can issue shares to the public, and shares are freely transferable. These companies are usually listed on stock exchanges.

3. Categorization Based on Control

Based on control, companies can be categorized as:

Sole Proprietorship:

• Definition: It is not defined under the Companies Act but is recognized under various laws, such as the Income Tax Act.
• Control: Controlled by a single individual.
• Characteristics: The owner has full control over business operations, and there is no distinction between personal and business assets.

Private Limited Company:

• Control: Controlled by directors, often with significant influence from shareholders.
• Characteristics: Decisions are made by the board of directors, with major shareholders often having significant influence.

Public Limited Company:

• Control: Controlled by a board of directors elected by the shareholders.
• Characteristics: Ownership and management are separate, with control exercised by the elected board.

Government-Owned Companies (PSUs):

• Definition: Under Section 2(45) of the Companies Act, 2013.
• Control: Controlled by the government, which holds a majority stake.
• Characteristics: Operates in sectors deemed crucial by the government, such as defense, energy, and infrastructure.

4. Categorization Based on Liability

Based on liability, companies can be categorized as:

Sole Proprietorship:

• Liability: Unlimited liability.
• Characteristics: The owner is personally responsible for all debts, and there is no legal distinction between personal and business assets.

Partnership Firm:

• Liability: Unlimited liability for all partners.
• Characteristics: Every partner is liable, jointly with all the other partners, for all acts of the firm.

Limited Liability Partnership (LLP):

• Definition: Under the Limited Liability Partnership Act, 2008.
• Liability: Limited liability for partners.
• Characteristics: Partners’ liability is limited to their contribution, and the LLP has a separate legal existence. No partner is liable on account of the independent or unauthorized acts of other partners.

Private Limited Company:

• Liability: Limited liability.
• Characteristics: Shareholders are liable only up to the value of their shares, which means shareholders are not liable to sell their personal assets in case of a loss.

Public Limited Company:

• Liability: Limited liability.
• Characteristics: Shareholders are not personally liable for the company’s debts beyond the amounts of their investments.

5. Categorization Based on Access to Capital

Based on access to capital, companies can be categorized as:

Sole Proprietorship:

• Access to Capital: Limited.
• Characteristics: Funding is typically from personal savings, small loans, or family resources.

Partnership Firm:

• Access to Capital: Moderate.
• Characteristics: Partners pool their resources with additional funding from loans based on the firm’s credit.

Private Limited Company:

• Access to Capital: Moderate to high.
• Characteristics: Can raise capital through private placements, venture capital, or loans but cannot raise capital from the public.

Public Limited Company:

• Access to Capital: High.
• Characteristics: Can raise capital by issuing shares and debentures to the public, listing on stock exchanges, and other financial instruments.

Section 8 Company:

• Definition: Under Section 8 of the Companies Act, 2013.
• Access to Capital: Limited to donations, grants, and philanthropic funding.
• Characteristics: Cannot distribute profits to members; profits are reinvested in the company’s objectives.

Each of these categories presents a different aspect of how companies in India are structured and operate, from the scale of their operations to their financial and legal framework.

Conclusion

There are different types of companies in India, so different stakeholders, like entrepreneurs, investors, and businesses, can operate efficiently within a legal framework. Every company serves a different purpose, from small startups to large multinational corporations, providing flexibility in terms of ownership, control, liability, and access to capital, as there are different regulations for different types of companies. Understanding these different types of companies is important for anyone looking to start, manage, or invest in a business in India.

Frequently Asked Questions (FAQs)