Classification of Company

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  Classification of Company 

Group 1: Classification Based on Mode of Incorporation (Creation)

This group defines the legal mechanism through which the company came into existence.

  • Chartered Companies (Royal Company):

    • Explanation: Incorporated by a Royal Charter granted by the Crown or Sovereign.

    • Status: This is an historical method (e.g., Bank of England) and is generally obsolete in modern jurisdictions like India.

  • Statutory Companies (Special Act Company):

    • Explanation: Incorporated by a Special Act of the Parliament or State Legislature. They are created to fulfill a specific public utility purpose.

    • Examples: Life Insurance Corporation of India (LIC), Reserve Bank of India (RBI).

  • Registered Companies (Incorporated Company):

    • Explanation: The most common type. They are formed by being registered under the current Companies Act (e.g., Companies Act, 2013).

    • Identification: They receive a Certificate of Incorporation from the Registrar of Companies (ROC).

Group 2: Classification According to the Member (Number/Public Access)

This group focuses on the membership size and the company's ability to approach the public for capital.

  • Private Company:

    • Explanation: Restricts the right to transfer its shares, limits the maximum number of members to 200, and prohibits any invitation to the public to subscribe to its securities.

  • Public Company:

    • Explanation: Allows free transferability of shares, has no maximum limit on members (minimum is typically 7), and can invite the public to subscribe for its shares and debentures.

  • One Person Company (OPC):

    • Explanation: A specific type of private company with only one member/shareholder, offering the benefit of limited liability to a single entrepreneur.

Group 3: Classification Market Wise (Listing Status)

This group defines the company's relationship with the Stock Exchange and the public securities market.

  • Listed Company:

    • Explanation: A company whose shares or securities are officially listed and traded on a recognised Stock Exchange (e.g., NSE, BSE).

    • Compliance: Subject to stringent regulations and disclosure requirements set by market regulators (e.g., SEBI).

  • Unlisted Company (Non-Listed Company):

    • Explanation: A company whose securities are not listed on any recognised Stock Exchange. Share transactions are typically conducted privately.

Group 4: Classification Based on Liability

This group defines the extent of personal financial risk to the shareholders/members.

  • Company Limited by Shares:

    • Explanation: The liability of each member is limited to the unpaid amount, if any, on the shares held by them.

  • Company Limited by Guarantee:

    • Explanation: The liability of members is limited to a fixed amount (the guarantee) that they promise to contribute only upon the company's winding up.

  • Unlimited Company:

    • Explanation: There is no limit on the liability of the members; their personal assets can be attached to pay off the company's debts.

Group 5: Classification Based on Control

This group defines the relationship between companies in a multi-entity structure.

  • Holding Company (Parent Company):

    • Explanation: A company that controls another company (the Subsidiary) by either controlling the composition of its Board of Directors or holding more than half of its total voting power.

  • Subsidiary Company:

    • Explanation: A company that is controlled by a Holding Company.

  • Associate Company:

    • Explanation: A company in which another company has "Significant Influence" (holding 20% or more of the voting power) but which is not a subsidiary.

Group 6: Classification Based on Ownership

This group defines a company based on the percentage of government ownership.

  • Government Company:

    • Explanation: A company in which not less than 51% of the paid-up share capital is held by the Central Government, State Government, or partly by both.

  • Non-Government Company:

    • Explanation: Any company that does not satisfy the criteria to be classified as a Government Company.

Group 7: Miscellaneous/Special Categories (Combining Domicile, Purpose, and Size)

This consolidated group includes special classifications based on origin, objective, and scale.

  • Domestic/Indian Company:

    • Explanation: Incorporated and registered within the country (e.g., India) under the respective Companies Act.

  • Foreign Company:

    • Explanation: Incorporated outside the country but which has an established place of business or conducts business activity within the country.

  • Section 8 Company (Non-Profit):

    • Explanation: Formed for charitable, religious, or promotional objectives (art, science, commerce). It is strictly prohibited from distributing profits (dividends) to its members.

  • Small Company:

    • Explanation: A private company that meets specific low thresholds for paid-up capital and turnover, qualifying for simpler compliance and regulatory benefits.

  • Dominated Company:

    • Explanation: A term referring to a company whose operations are heavily influenced by an outside party. Legally, this concept is covered by the Holding-Subsidiary structure or judicial principles like piercing the corporate veil.

  • Dormant Company:

    • Explanation: A company registered for a future project or to hold an asset/intellectual property, which has had no significant accounting transaction for two consecutively.

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