ALIGARH MUSLIM UNIVERSITY

Malappuram centre,kerala

Mid – term Assignment

In The Course Of Company Law
TOPIC- CLASSIFICATION OF COMPANIES

SUBMITTED TO- SUBMITTED BY-

MR.SHAKEEL AHAMAD VAIBHAV TEOTIA

ASST PROF. ROLL NO. 18BALLB03

DEPT. OF LAW. EN. NO GJ 3957

CONTENTS
S.No. Particulars. P.No
1 Acknowledgement 3

2. Introduction 4

3 Classification of companies 4

4 Classification of companies on the basis of incorporation 5

5 Classification on the basis of liability of members 5

6. Classification on the basis of number of members 5

7. Classification on the basis of domicile 6

8 Classification on the basis of miscellaneous factors 7

9 New kind of companies recognized under company Act 2013 9

10 Conclusion 10

11 Bibliography 11

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ACKNOWLEDGEMENT

First of all , I would like to express my gratitude To almighty to enabling

me to complete this report On this topic –“ classification of
companies”

Then thanks to academic supervisor Mr. Shakeel Ahmad (Assisstant

Professor ,Department of law, Aligarh Muslim University). She gave
me certain guidance how to Write and research.

Last, but not least I would like to thank my family and friends who
helped me while making this report by providing assistance.

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INTRODUCTION

The Indian economy has a variety of companies existing in its market such as public companies,
private companies, investment companies, limited liability companies etc. These numerous
entities in the market may look different from each other on the surface, but based upon certain
identifiable common characteristics they can be grouped into below-mentioned classifications.
This article aims to draw your attention towards the conventional classification of the companies
that are made based upon factors such as liability, control, incorporation, transferability of shares
etc.

CLASSIFICATION OF COMPANIES

The companies may be classified based upon the mode of their incorporation and incorporation
process which is defined under Section 7 of the Companies Act, 2013.

Incorporation is the day when the company acquires a legal identity i.e. the day when a company
takes birth in the eyes of law. Section 2 of the Companies Act, 2013 defines the various kinds of
companies and their facets.

CLASSIFICATION OF COMPANIES ON THE BASIS OF INCORPORATION

❖ Royal Charter Company

It may be better understood as the company born out of the authorization of the sovereign or the
crown. This was the mode of incorporation which was followed earlier to the Registration under
the Companies Act. A charter is granted by the crown to the people requesting to form a
cooperative or a company. To name a few, The Bank of England (1694), The East India
Company (1600) were formed by the means of charters passed by the then Crown of England.
The authorization given by the sovereign gives legal existence to these companies by means of
the body of the charter. This mode of incorporation is no more recognised in any Companies Act
to incorporate new Companies.

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 ❖ Statutory Company

As the name suggests, these are the companies that are formed by the means of a special statute
passed by the Parliament or the State Legislature. The examples of statutory companies in India
are the Reserve bank of India, the Life Insurance Corporation of India Act, etc.

The Statutory origins of these companies provide power to such companies to be bound by their
own statute, i.e. whenever there is any dispute between statute under which these companies
were formed and the Companies Act 2013, the statute being special legislation persists over the
general law of Companies Act. The parliaments both State and Centre are empowered to make
such legislation for incorporation under the power endowed to them by the Constitution of India.

❖ Registered Company

As defined under Section 2(20) of the Companies Act, 2013, registered companies are the
companies which get registered under the statute of the Companies Act. Companies are also
provided with a certificate of incorporation by the Registrar of the Company.

CLASSIFICATION OF COMPANIES ON THE BASIS OF LIABILITY OF MEMBERS

The liability upon the members is also used to classify the companies, it describes the limit to
which member will be liable if such liability were to befall upon the company. On the basis of
liability of the members, the companies may be classified into:

❖ Companies limited by shares:

These types of companies are mentioned in Section 2(22) of the Companies Act, 2013. The
liability of the members of such a company is based upon the number of shares kept unpaid. This
liability against the shares kept may be brought to the authority. Once the payment towards the
security is made by the shareholder or member then no liability beyond that is placed upon such
member. The liability may be enforced during the company’s existence and even during its
winding-up process.

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 ❖ Companies limited by guarantee

These types of companies are mentioned in Section 2(21) of the Companies Act, 2013. In a
Company where the liability is limited by guarantee, it means the member of the Company has
agreed on the Memorandum of Association to repay the same amount during winding up of such
Company. In such companies, the liability of the members is limited to the undertaking given by
them. Trust research associations, etc. are examples of companies liability limited by guarantee.

❖ Unlimited Liability Company

These companies as defined under Section 2(92) of the Companies Act, 2013 do not have a cap
on the amount of liability that may add on their members in case the company has to repay any
debt. For any amount that the company owes these members, the unlimited liability company
shall be liable to the extent of their interest in the company. These companies do not draw any
popularity when it comes to Indian Market.

(III) CLASSIFICATION OF COMPANY ON THE BASIS OF THE NUMBER

OF MEMBERS

The number of members in a company is looked upon while classifying them. This classification
of the company has been discussed in detail under the below-mentioned headings. On the basis
of the number of members in the companies may be classified into:

❖ Private Company
The private companies as defined under Section 3(1)(b) of the Companies Act, 2013 are very
restrictive in nature wherein it may in its Articles of Association restrict the right to transfer
shares. The number of members in such a company might be a maximum of 50. The shares and
debentures of such companies are not available for the public at large. The number of members
in a company to be called a private company is two, wherein it is clearly set that two members
jointly holding a single share shall be considered as one member and not two members. The easy
identification of Private companies is the ‘Pvt. Ltd.’ attached to its name.

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 ❖ Public Company
As defined under Section 2(71) of the Companies Act, 2013, Public Companies are the ones
which are not a private company. As mandated under Section 3(1)(a) of the Companies Act,
2013, there should be at least 7 members to form a public company. It is the intrinsic nature of
the public company that there is the right to transfer shares and debentures of the public company
to the public at large.

(IV) CLASSIFICATION OF COMPANIES ON THE BASIS OF DOMICILE

On the basis of their domicile the companies may be classified into:

❖ Foreign Company
A Company which is situated outside India, but has a registered place in India may be physical
or electronic address or perhaps company has ownership itself or through the agents,
representatives or managers of the company is known as a foreign company under Section 2 (42)
of the Companies Act, 2013. The aforementioned definition included in the new Companies Act
has widened the scope of the definition of foreign companies extending the same to the entities
having their electronic presence in India. The list of foreign companies listed in India has names
of the corporate giants such as Whirlpool of India Ltd., Timex Group India Ltd., Ambuja
Cements Ltd., etc.

❖ Indian Company

Indian Company has been defined under Section 2(20) of the Companies Act, 2013 as any
company registered under the Companies Act, 2013, or any other previous law is known as an
Indian Company. An Indian company may prove its locus standi with the help of its office
address and the legislation provides a guideline to be followed while using such powers by an
Indian company.

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(V) CLASSIFICATION OF COMPANIES ON THE BASIS OF
MISCELLANEOUS FACTORS

On the basis of other miscellaneous factors the companies may be classified into:

❖ Government Company
As defined under Section 2(45) of the Companies Act, 2013, any company in which a minimum
of 51 per cent of the paid-up share capital is held by the Central/State Government, and/or held
fractionally by the Central Government and partly by one or more State Governments is known
as a Government Company. The major drawback of having a government company is the lack
of autonomy.

❖ Holding, Subsidiary Companies and Associated Companies

Under Section 2(46) of the Companies Act, 2013, a company is known as the holding
company of another company if it has administrative control over another company. Such
control may be regarding the affairs of the company. Under Section 2(87) of the Companies Act,
2013, a company is known as a subsidiary company of another company when control is
exercised by the other company over the subsidiary company.
A company is deemed to be a subsidiary company of another:

(1) If the other company

• Exercises or controls more than 50% of the total voting power i.e. where the holders of
preference shares have the same voting rights as the equity shares holder, or,
• 50% in nominal value of its equity share capital held, or,
• Possesses power regarding the composition of the Board of directors.

(2) If it is a subsidiary of a company which is a subsidiary of the controlling company.

The holding power also includes another kind of Company known as Associate Company, which
is now being explained with respect to the above-mentioned Holding and subsidiary company.

❖ Associate Company
These Companies as defined under Section 2(6) of the Companies Act, 2013 are the one in
which the other company has significant influence but these Companies are not the subsidiaries

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of such influencing companies known as the Associate Company. The Joint Venture Companies
are such associate companies.
The significant control can be inferred directly from the explanation attached to the provision
which requires the influencing company to hold 20% of the share capital or any agreement
whereby the decision making of the associate is placed upon such Influencing Company. The
Associate Company concept has been seen as a harbinger of transparency in the working of the
Company since it provides a more rationale grundnorm for an associated relationship between
the two companies.

❖ One man Company

Under Section 2(62) of the Companies Act, a company in which one person is the whole and
sole owner of the share capital of the company is known as a One Man Company. In order to
meet the statutory requirement of a minimum number of members, some namesake company
shareholders hold one or two shares each. The namesake shareholder members are usually
nominated by the principal shareholder. The principal shareholder enjoys all the profits of the
business with the protective shield of limited liability. Such companies have been given legal
sanctity.

❖ Difference between One person company and Sole Proprietorship

The major or fundamental difference between a one-person company and the sole proprietorship
is based upon the limitations or extent of liability in the one-person company. One person
company is different from the Sole proprietorship as the ne person company differentiates the
promoter from the separate entity of the company. The liability of the director of the one-man
company is limited in the event of any legal liability or claims made against the company.

❖ Investment Company
The Investment Companies as defined under section 186 of the Companies Act, 2013, are the
companies which have a fundamental business or transaction relating to the securities of other
companies. Securities may be of a nature of shares or debenture or other securities offered by
such entity. The word investment in its predominant sense means to acquire a resource and hold

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it for the interest earned over it, but in the case of an investment company, the investment is
aimed not only at the acquisition and holding but perhaps to even the sale of the securities
whenever they reach a better price.
The Investment company under Section 186 of the Companies Act, 2013 are based upon the
market trend relating to the shares analyses the maximum profit investment for the Company.
The commonly used terminology of stock market relating to the bear and bull market and the
understanding of the trend plays a crucial role to attain profits aimed at by the company.
There are still two perspectives towards the investment company functioning and the
characteristics of the transactions made by such company. One set of claims suggests that the
Investment Companies are only supposed to purchase security and earn interest by maintaining
them. The other school of thought suggests that the investment company may earn not only by
purchase and hold but also selling of the securities.

NEW KIND OF COMPANIES RECOGNISED UNDER THE ACT, 2013

❖ Dormant Companies
Where a company is formed under Section 455 of the Company Act, 2013 for a future endeavour
or to hold an asset which may be a physical or intellectual property and has no significant
accounting transaction, such a company or inactive company can make an application to the
Registrar in the prescribed manner for obtaining the status of the dormant
company.
The explanation attached to this provision states about the inactive company prescribing a period
of 2 years of inactivity in terms of business transactions, operations etc, or the companies which
have not filed their annual returns or the financial statement in the last 2 years. Such transactions
do not include all the necessary payment which are made by the company to the Registrar and
other payments which are supposed to be made under any other law.
The Registrar allows the certificate of the inactive company to the applicant company. The
registrar must maintain the list of dormant companies. A company to remain a dormant company
on the books of the registrar has to pay the required sum. The Company on request may make
the Dormant Company back to an active company.

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CONCLUSION

Various classifications have been made in this topic of Company based upon various factors of
independence, liability, financial conduct etc. These classifications are not to be observed in
isolation as the Company may have two or more characteristic features of the companies
mentioned above and form a very unique kind for itself. The kinds of companies have only been
made so as to ease the understanding of the complex legal being that is a Company.

BIBLIOGRAPHY

Books-

1- Bangia RK : Company Law

2- Singh Avtar : Company Law

Websites-

• www.lawoctopus.com

• www.livelaw.com

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