Different Types of Business Structures in India
India is one of the world’s major economies with the quickest growth rates, whose service sector is the main driver. India is undergoing a period of unparalleled economic emancipation, and by facilitating more access to its enormous and diverse market, it is promoting international direct investment. For these reasons, many businesses aim to expand by establishing their own operations in India. Different sorts of business companies registered in India by foreign investors. Investors can choose the structure for their firm based on its objectives, aims, initial investment, and time horizon (short- or long-term). Continue reading to find out more about starting a business in India and the many kinds of business entities there.
Types of companies based on the 2013 Companies Act
The Companies Act, 2013 (the “Act”) in India allows business owners to register various companies to conduct their operations and give their companies a legal framework. The following list includes the many company types:
The One Person Company concept was introduced by the Act (OPC). According to the Act, an OPC is a business with just one member, and the company’s director may also be a member. Although there should only be one member of the OPC, there can be up to fifteen directors.
Private Limited Company
A private limited business has a membership cap of 200 people. A private limited corporation must have at least two members to be incorporated. It is appropriate for companies that choose to register as private corporations because the members cannot transfer their shares. In a private limited company, there must be a minimum of two directors and a maximum of 15 directors.
Public Limited Company
A company that allows the general public to own company shares is referred to as a public limited corporation. A public limited company may have as many shareholders as it chooses, but it must have a minimum of seven members to become incorporated. The number of directors for the corporation must be at least two and never exceed fifteen.
Company Types Based on the Number of Members
The definitions of well-known companies, like private and public companies, depend on the number of members (shareholders). Except for OPC, any person or even a body corporate may be a member of any corporation. Even overseas nationals or NRIs are welcome to join these companies as members.
Private Limited Company
A Private Limited Company must have a minimum of 2 members and a maximum of 200 members at once. The aforementioned legislative limit must always be followed. Learn about private limited companies in India here.
One Person Company
Also a private company, OPC stands for One Person Company. OPC differs significantly from other types of businesses due to the size of its membership. In OPC, there is never more than one member at any given moment. This member must be an individual who resides in India.
A public company’s maximum number of members is unrestricted. The minimal number of members is offered, nevertheless. A general business must have a minimum of 7 members to be registered. These public corporations include those listed on stock exchanges. These businesses can raise money from the general public by making public offers (IPO or FPO).
Various company types according to liability
Company Limited by Shares
The capital is introduced in this type of corporation in the form of shares, or a smaller percentage known as shares, from the company’s total wealth. The shares are regarded as the shareholder’s equity in the business, and the amount of equity shares a shareholder holds represents their stake in the company.
Shares may be issued for subscription by shareholders if the company needs additional capital. The liability of the members in this kind of corporation is capped at the unpaid money on the subscribed shares.
According to the nature and number of members, this type of company can also be registered as a public limited company, a one-person company, or a private limited company.
Limited by Guarantee Company
The company may be a public limited company or a private limited business, with or without the division of capital into shares. The money the members must provide in this case is guaranteed.The Memorandum’s subscriber signs their name next to the amount assured and subscribes to it.
The amount promised, in this case, serves as the basis for the ownership proportion. Whenever the need for capital arises, the members provide it to the business. Members’ liability is strictly capped at the amount of the guarantee offered.
As previously mentioned, these businesses may also issue shares, and the holders of those shares are likewise liable up to the outstanding balance on those shares. Shareholding, however, is not a factor in determining ownership.
The members’ responsibility is unrestricted in this kind of company. If a debt is incurred, the members’ accountability extends beyond their ownership stake in the firm and includes their personal belongings. Currently, entrepreneurs are not choosing to incorporate this kind of business.
The members become liable when capital must be raised or debt must be paid, whether by bankruptcy, winding up, or another means. The most common sort of business entity is a company limited by shares. Depending on the type of firm, the companies can be further divided into private and public companies. It can be divided into charitable companies, Nidhi companies, etc., based on its activities.
Company Classifications based on Control
The following categories of companies can be made based on ownership and control:
A holding company is a business that controls the majority of the voting shares of another business (subsidiary company). The holding company is the parent company that owns the subsidiary company’s management, assets, and policies. However, it doesn’t participate in the day-to-day operations of the subsidiary.
A subsidiary firm is wholly or partially owned by another company (holding company). The parent company controls more than 50% of the voting power on the subsidiary firm’s board of directors. The subsidiary is referred to as a Wholly Owned Subsidiary (WOS) of the holding company when a single holding company has 100% of the voting power.
Company Types based on Listing
The companies are divided into listed and unlisted enterprises based on their ability to obtain money. Public companies do not have to be listed, but the reverse is not required. A private or public limited corporation might be an unlisted company.
A company registered on several reputable stock markets inside or outside India is a listed company. On the stock markets, shares of the companies that are listed are freely traded. They are required to abide by the Securities Exchange Board of India’s rules (SEBI).
A corporation should distribute a prospectus to the general public for subscribing to its debentures or shares if it wants to list them on stock exchanges. A business can list its shares through an Initial Public Offering (IPO); meanwhile, a company already listed can conduct a Further Public Offering (FPO).
An unlisted firm is one whose shares are not freely tradable on recognized stock markets and are not listed on any such exchange. These businesses acquire the financing they need from friends, family, and other relatives, as well as from financial institutions and private placement. If an unlisted firm wants to offer its securities on stock markets, it must become a public corporation and publish a prospectus.
Other Types of Companies
As its name implies, foreigners own foreign companies. When foreign ownership of an entity reaches more than 50%, it is designated as a foreign business. The easiest way to start a business in India is for companies registered outside India, and such companies are registered as foreign companies’ Indian subsidiaries.
Section 8 Company
It is referred to as a Section 8 Company since it is a company registered under Section 8 of the Companies Act. It is registered as a non-profit organization and for charity purposes. Due to its registration as a Section 8 Company, this company has a special status and specific exemptions. Let me draw your attention to the fact that express approval from the relevant authorities is necessary for Section 8 Company Registration.
A producer company is a business registered to handle the principal agricultural production of its active members. The primary goal involves all aspects of production, including selling and exporting.
A producer company has two or more producer institutions, ten or more producers as members, or any combination. Like any other corporation, its members’ liability is only as significant as their unpaid share capital. According to this Act, the production firm is presumed to be a private limited business; however, it is exempt from the membership requirement.
Registered companies are given a unique designation, “Small Company.” Although incorporation is not required, it is a status that a new company acquires due to its financial and other circumstances.
A corporation is considered tiny if it meets the criteria listed below:
- A private company
- Paid-up share capital: not more than Rs50,000
- Turnover: According to the profit and loss report for the most recent financial year, not more than two crore rupees.
- Furthermore, this is not covered by any holding or subsidiary company, a Section 8 company, or a firm subject to a specific Act.
- The Companies Act of 2013 provides some compliance exemptions for small businesses.
FAQs on Types of Companies
Q- Which five business structure models are most prevalent?
Limited liability company.
Q- What kinds of businesses are registered?
In India, there are seven different forms of company registrations.
- Private Limited Company.
- Public Limited Company.
- Partnerships Company.
- Limited Liability Partnership.
- One Person Company.
- Sole Proprietorship.
- Section 8 Company.
Q- Which is preferable, LLP or Pvt Ltd?
Private limited companies are therefore favourable in terms of ownership and management attributes. There is no clear line between owners and management in an LLP, and in an LLP, the LLP Partners own the LLP and have management authority over it.
Q- What distinguishes an LLP from an SdnBhd?
Unlike SdnBhd, LLPs do not need a company secretary and have more accessible administrative procedures. However, an LLP is required to have either an external company secretary or a compliance officer who is a partner of the LLP.
Q- What is company type?
The first three options are three types of private limited companies: a company limited by shares, a company limited by guarantee, and a limitless company. Companies with a minimum of two and a maximum of 200 members are classified as private limited companies.
Q- In India, what is a company?
A company is an organization of two or more people working toward a similar business goal. An organization is a “Separate Legal Entity” with a unique identity from its members.
Q- How many different business types are there in India?
According to Indian law, seven different entities exist Private Limited Company, Public Company, Sole Proprietorship, One Person Company, Partnership, Limited Liability Partnership (LLP).