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Business Environment and Law-Nature Of Company And Formation

Classification Of Companies: - Nature Of Company And Formation

   Posted On :  08.05.2018 06:47 am

Classification Of Companies: - Nature Of Company And Formation

Classification Of Companies:

On the Basis of Incorporation


Chartered Companies: Companies set up as a result of a royal charter granted by a king or queen of a country are known as chartered companies. Example: East India Company, the Bank of England etc.

Statutory Companies: Companies set up by Special Acts of Parliament or State Legislatures are called Statutory Companies. Example: Reserve Bank of India, Life Insurance Corporation of India, Unit Trust of India etc.

Registered Companies: Companies registered under the Indian Companies Act, 1956 or under any of the previous Companies Acts are called registered companies. Most of the companies in India belong to this category.

Licenced Companies: Companies established for the promotion of arts, science, religion, charity or any other similar objects can obtain license under Sec.25 from the Central Government and enjoy certain privileges.


Foreign Companies: A company incorporated outside India under the law of the country of incorporation but having established its business in India is called a foreign company.

On the Basis of Liability


Companies with Limited Liability: It is a company where the liability of the shareholder remains limited to the nominal value of the shares held by him.

Companies Limited by Guarantee: In a guarantee company the liability of a shareholder is limited to the amount he has voluntarily undertaken to contribute towards the assets of the company to meet out any deficiency at the time of it winding up. Such a company may or may not have a share capital.

Unlimited Companies: Here the liability of its members is unlimited. In other words, their liability extends to their private properties also. Unlimited companies are almost non-existent these days.

On the Basis of Number of Members


Private Company: As per Section 3(1) (iii), a private company means a company which by its Articles restricts the right to transfer its shares if any, and limits the number of its members to fifty and prohibits invitation of shares from the public.

Public Company: According to Section 3(1) (iv), a public company means a company which is not a private company.

On the Basis of Control


Holding Companies: A company exercising control over another company is called a holding company. [Sec.4(4)].

Subsidiary Companies: The company so controlled is called a subsidiary company. [Sec.4(1)].

On the Basis of Ownership


Government Company: Definition (Sec.617): A Government company means any company in which not less than 51% of the paid up share capital is held by the Central Government or by any State Government or Governments, or partly by one or more State Governments and includes a company which is a subsidiary of a Government company.

Foreign Companies (591 to 602): A foreign company is a company which is incorporated in a country outside India under the law of that foreign country and has a place of business in India. They are of two types: (1) Companies incorporated outside India, establish a place of business in India after April 1, 1956; and (2) Companies incorporated outside India, which established a place of business in India before that date and continue to have an established place of business in India.

Deemed Public Company: The Companies (Amendment) Act. 2000 has, by introducing a sub-section (11) to Section 43A, made that a private company will not automatically become a public company on account of shareholding or turnover.

One Man Company: A member may hold virtually the entire share capital of a company. Such a company is known as a “one-man company”. This can happen both in a private company and a public company. The other member/ members of the company may be holding just one share each. Such other members may be just dummies for the purpose of fulfilling the requirements of law as regards minimum membership [Salomon v. Salomon & Co.Ltd.].

Non-Trading Company/Non-Profit Association: Such a company must have the objects of promoting of commerce, arts, science, religion, charity or any other useful object and must apply its profit, if any, or other income in promoting its object and must prohibit payment of any dividend to its members. As soon as it obtains a license and is registered accordingly, it will have the same privileges and obligations that a limited company has under the Companies Act, 1956.

Investment Companies: An investment company is a company the principal business of which consists in acquiring, holding and dealing in shares and securities. It involves only the acquisition and holding of shares and securities and thereby earning income by way of interest, dividend, etc.

FERA Companies: The FERA companies are those companies which are incorporated in India in which the non-resident interest (viz., foreign equity share capital) was more than 40%. After the Amendment of FERA 1973 in the year 1993, the erstwhile FERA companies would not in future be subjected to obtain the prior approval of the RBI in respect of certain matters.

Finance Companies: A finance company means a non-banking company which is a financial institution within the meaning of clause (c) of sec.45 of the RBI Act, 1934.

Public Financial Institutions (Sec. 4-A): The following financial institutions shall be regarded, for the purposes of the Companies Act, as public financial institutions, namely:-
  • The Industrial Credit and Investment Corporation of India Limited (ICICI)
  • The Industrial Finance Corporation of India (IFCI)
  • The Industrial Development Bank of India (IDBI)
  • The Life Insurance Corporation of India (LIC)
  • The Unit Trust of India (UTI)
  • The Infrastructure Development Finance Company Ltd. 

Sub-section (2) of Sec. 4-A empowers the Central Government to specify any other institution, as it may think fit, to be a public financial institution by issuing a notification in the Official Gazette.
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