Definition and Characteristics of different types of Companies

Definition and Characteristics of different types of Companies

Different types of Companies:

1)Private Company– In the case of members, private companies need to have a minimum of 2 and a maximum of 200. These members include present and former employees.

2)Public Company– “Public Company”, means a company which-

i)is not a private company;

ii)has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed;

3)One Person Company– A member may hold virtually the entire share capital of the company. Such a company is known as “One Person Company”.

4)Holding Company– A company that has control over another company is known as a holding company.

5)Subsidiary Company– “Subsidiary Company”, in relation to any other company means a company in which the holding company-

i)controls the composition of the Board of Directors; or

ii)exercises more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies;

6)Small Company– “Small Company”, means a company, other than a public company, of which paid-up share capital of which does not exceed Fifty Lakh Rupees such higher amount as may be prescribed which shall not be more than five crore rupees and turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees;

7)Foreign Company– A foreign company is a company which is incorporated in a foreign country outside the home country under the law of that other country, and want to or has established business in the country.

Definition of One-Person Company:

“One Person Company”, means a company which has only one person as a member.

Characteristics of One-Person Company:

1. Single Ownership– A single person owns the entire business, i.e. all the assets and property belong to the proprietor. Accordingly, he bears all the risks associated with the enterprise.
2. No sharing of Profit and Loss- Whatever income generated from the sole ownership business, it belongs to the sole owner only. Consequently, all the losses incurred by the firm are borne alone by the proprietor.
3. One man’s capital– The capital required to start the business is arranged and brought to the business by the sole owner only, either from his personal resources, i.e. from the bank, friends, relatives, etc.
4. Less legal formalities– The legal requirements for the formation, operation, and closure of a sole proprietorship business are almost nil.
5. One-man control– Only one person is in charge of all the activities, he has full control over it. Thus, the sole owner takes all the decisions and executes them, in the manner he wants.

Definition of Public Limited Company:

“Public Company”, means a company which-

i)is not a private company;

ii)has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed;

Characteristics of Public Limited Company:

1. Ownership– The ownership of a Public Limited Company lies with two or more shareholders who own the shares of the company.
2. Perpetual Succession– The company’s existence is independent of the death, bankruptcy, or insolvency of any of the members.
3. Formation- A Public Limited Company can be formed with the appointment of at least two directors and one qualified company secretary.
4. Directors- A public company needs to have three or more directors for its existence.
5. Name– The company has to end its registered name with the word ‘limited’ for making it a Public Limited Company.

Definition of Private Limited Company:

“Private Company”, means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,

1. i) restricts the right to transfer its shares;
2. ii) except in the case of One Person Company, limits the number of its members to two hundred;

iii) prohibits any invitation to the public to subscribe for any securities of the company;

Characteristics of Private Limited Company:

1. Number of Members– There is a limit to the minimum and maximum members required for a private company to start a business and the minimum it’s 2 members and the maximum cannot be more than 200 members.
2. Members liability is limited– The liability of its companies is limited to the number of shares held by them. Members’ personal assets are not liable to pay the business losses and in case of any losses only shareholder share in the company, assets are liable.
3. Transferability of shares restricted– Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.
4. Private Limited– All private companies must include the word “Pvt Ltd.” In their names.
5. Privileges and exemptions– Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

Differences between Public and Private Limited Company:

Public Limited Company	Private Limited Company
1.Meaning: A public company is a company which is owned publicly.	1. A private company is a company that is owned privately.
2.Minimum Members: Minimum members required are 7.	2. Minimum members required are 2.
3.Maximum Members: Maximum members required are unlimited.	3. Maximum members required are 200.
4.Minimum Directors: Minimum directors required are 3.	4. Minimum directors required are 2.
5.Suffix: The suffix added is “Limited.”	5. The suffix added is “Private Limited.”
6.Statutory Meeting: The statutory meeting is compulsory.	6. The statutory meeting is optional.
7.Issue of Prospectus/ Statement in lieu of Prospectus: Issue of the prospectus is obligatory in Public Limited Company.	7. Issue of Prospectus is not required in Private Limited Company.
8. Public Subscription: Public subscription is allowed.	8. Public subscription is not allowed.
9.Quorum at AGM: 5 members required.	9. 2 members required.

Author: Shreya Potdar,
S.N.D.T LAW COLLEGE