We are a rapidly growing economy, with new business ventures popping up every day. If you plan to establish your own business in India, now is the right time. The first step, of course, is registration; once registered, a company can legally conduct business.
It doesn’t matter what company it is. As long as it is not a statutory company or a governmental company, it will need registration. To register, head to the registrar of companies, and all guidance will come from there. There is a set of rules and regulations that you will have to abide by to be recognized legally. These rules that govern how you register depend mainly on what you do and what type of business you are. So, let’s look at the kinds of companies that India recognizes.
Types of Companies in India
Below is a detailed list of all different types of companies in India.
- Statutory Company
- Private Limited CompanyTypes of private limited companies
- Public Limited Company
- Partnership Firms
- Joint-Venture Company
- Sole Proprietorship
- One-Person Company
- Small Company
- Non Governmental Organization
- Non Profit Organization
- Holding Company And Subsidiary Company
- Associate Company
- Government Company
- Foreign Company
- Producer Firm
- Dormant Company
1. Statutory Company
Statutory companies are formed by central or state legislation and are the only type that don’t have to be registered. These are formed not to make profits but to serve the state. The Reserve Bank of India is a statutory company. The sole purpose of the Reserve Bank of India as a company is to govern the Indian economy. Similarly, government hospitals and schools also come under this category. They are a company in the sense that they provide a service.
2. Private Limited Company
Mostly small business and mid-tier businesses fall under this category. A private limited company can have only 2 to 200 members, which means only 2 to 200 people can have shares in this type of company. This limits its financial resources to these handful of people’s joint finances. A private limited company is required to have the words “private limited” in its name. It has to have a minimum of two directors and 1 lakh of capital, or it ceases to be a private limited company.
Types of private limited companies
- A company limited by shares: This type of company will divide its profits into fixed amounts to be distributed among the shareholders. Anyone can become a shareholder here by buying shares through the stock market. These are companies that a small group of people owns; that is, the stocks are few. Although they can be traded freely, in most instances, you see them traded within the stakeholders’ social circles. Most startups and small businesses that have two or more members come under this category.
- A company limited by guarantee: Here, the members contribute a fixed amount of capital, and their liability is limited to only that sum. They are not required to shell out more or less as per the company’s financial state.
- Unlimited company: This is a risky business indeed, as any owners’ belongings come under the purview of company assets. In other words, if the company makes a loss, the members’ personal assets can be liquidated to cover debts.
3. Public Limited Company
In India, a public limited company has to have a minimum of three directors and seven stakeholders, though there is no maximum cap. It has to be run as an independent entity that can’t be affected by its members’ or stakeholders’ lives or deaths. A public limited company’s shares can be freely traded. Typically, large-scale companies fall under this category. The motivation behind making a company public limited is to remove the funds’ limit. Instead of finding funds only from its members, it can reach out to the general public. These types of companies in India are most common.
4. Partnership Firms
These require for there to be a minimum of two partners and a maximum of ten. All the rights, responsibilities, roles, and share of profits and liabilities, have to be decided contractually beforehand. Here, each partner’s scope is limited; this allows compartmentalizing the company’s tasks and processes. Each individual member here is called a partner, and they are collectively called the firm.
5. Joint-Venture Company
Like partnership firms, in a joint-venture company, roles, responsibilities, shares of profit, and liabilities are contractually fixed. The difference between joint-venture and partnership firms is that joint-venture firms are created by two or more investors. More often than not, others are established companies, not individuals. Plus, these investors can be a mix of foreign and Indian investors. This allows for the integration of two or more already established networks, leading to tremendous business benefits. For example, consider Maruti-Suzuki; these are two different companies that have collaborated to produce automobile devices.
6. Sole Proprietorship
This is a high-risk venture, owned and run by a single person. All of its profit and loss are the responsibility of that one person. The owner’s liability here is unlimited; this means that if the company were to make a loss, the owner might have to sell his assets to pay off his debts. This is an excellent option for small businesses that need small capital. Stores and tuition classes are some examples of sole proprietorships.
7. One-Person Company
As the name suggests, this is a company that has only one owner. The main requirement here is that the individual is an Indian citizen. A one-person company is similar to a sole proprietorship. Still, even though people often think of them as the same thing, they are not. One-person companies are treated as separate entities from their owners; that is, the owner’s assets are not treated as belonging to the company. In other words, even if the company makes a huge loss, the owner will not be rendered homeless. In a sole proprietorship, the proprietor may lose his assets in such cases. The only drawback is that a one-person company may face some difficulty procuring loans. Since the owner is not liable to pay off the debts, the investors may be a little more cautious while lending or investing.
8. Small Company
A small company is also called a small-scale company. This is separate from public and private companies. A single person or a group can run a small company. As long as the capital doesn’t exceed fifty lakhs and the turnover is less than two crores, it can be termed a small company. It cannot hold a subsidiary, cannot be formed under section 8 of the 2013 act; in other words, it cannot be an NGO or NPO. It cannot be formed under any special action or under the purview of the government.
9. Non Governmental Organization
NGOs are formed for societal reasons, welfare causes, or to provide goods and services to the needy. The main criteria for an NGO to be an NGO and not a firm per se are that the members do not profit from these organizations. NGOs depend entirely on donations for funding and are run by the people or companies’ goodwill. All funds must be used for the cause to which the NGO dedicates itself. Volunteers, not employees, run these.
10. Non Profit Organization
These are also called section 8 companies. In a nutshell, NPO is like an NGO but not the same. NPOs, unlike NGOs, have a broader base to tap into for funding; members, directors, stakeholders can contribute funds. Funds can also be borrowed or requested from the government. Whatever excess funds there are can be used to better the NPO, like providing added facilities to the employees or running ads. These are run by volunteers but may also have a few paid employees.
11. Holding Company And Subsidiary Company
A company that controls another company is called a holding company. The company that is being held is called the subsidiary company. This allows businesses to branch out and create individual, self-sustaining ecosystems. Different aspects of the two businesses run without interfering with each other. Take, for example, a company that manufactures both cars and clothes. These are very different products, so the people driving these areas’ decisions will have vastly different skill sets, knowledge, or experience. Both of these would exist separately. However, they would be headed by one holding company.
12. Associate Company
This is similar to a holding and subsidiary company. The difference is that the influence is more limited, and it can go both ways. Besides that, it’s influence, not control. An example of associate companies is joint venture companies, discussed above. Joint-venture companies are headed by different people with an equal or near-equal say in the proceedings. Another example would be interlinked businesses that depend on one another for better performance.
13. Government Company
This is a company that has the government as a member. It can be formed by both the state as well as the central government. Take, for example, nationalized banks; the government is a stakeholder in these. When a nationalized bank underperforms, the government keeps it afloat with funds. When it performs well, the government takes a chunk of the profits.
14. Foreign Company
To be registered as a foreign company, the firm must have already been established abroad and then venture into the Indian market. It has to have at least one place of business in India and should conduct business activities in India. A lot of the products that we consume are, in fact, made in India by a foreign company. Think McDonald’s or Starbucks. These are two of the most well-known foreign companies registered in India!
15. Producer Firm
This is a firm that either produces a product or provides a service, so almost all companies fall under this category. A producer firm, despite what the name suggests, is not limited to manufacturing. In reality, even a service provider falls under this bracket. There are eleven activities listed in section 581 B. A company that engages in one or more of these is called a producer firm. In a nutshell, anything from manufacturing to distribution and sales, from education to welfare, can come under this heading. The only sure-shot exception is a dormant company.
16. Dormant Company
This is a company that does not do any business but is registered. Dormant companies are often formed with a vision of the future in mind. These are formed to make them active at either a specific date or in case of a particular event. They may even be formed just as a means of holding an asset or rights to intellectual property or patent. These can also be companies that were once active but aren’t any longer. If a company shows no transactions or activity for some time, it is considered dormant.
The government of India does recognize vastly different types of companies in India. This is good news for entrepreneurs. Remember that not all businesses need registration. The critical factor here is employment; if you are generating employment not just for you and a friend but for subordinates, then registration is a must. Also, if your business can in any way become a liability to the health of the public, it needs registration; if not as a business with the registrar, then at least with the appropriate authority. For example, a food truck would need certification from the food safety and standards authority. If you are still confused about whether your business will need registration and what category it falls under, consult a lawyer or related company registration expert.