Limited Company
Private limited companies, public limited companies, sole proprietorships, one-person companies (OPCs), partnerships, and limited liability partnerships (LLPs) are among the several entities recognized by Indian law.
Company Types According to 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:
- One-person company: 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 15 directors.
- Private limited company: A private limited company 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 to register as private corporations because the members cannot transfer their shares. A private limited company must have a minimum of two directors and a maximum of 15 directors.
- Public limited company: A company allowing the general public to own company shares is called a public limited corporation. A public limited company may have as many shareholders as it chooses, but it must have at least seven members to become incorporated. The number of directors for the corporation must be at least two and never exceed 15.
What is a Limited Company?
A limited company is a type of general business entity that limits the liability the company’s stockholders bear. It alludes to a system of laws that ensures that a business member’s or subscriber’s responsibility is limited to the investment they have made in the company. Legally speaking, a limited company is considered to be a person.
How Does a Limited Company Work?
As previously mentioned, in a limited company, the firm’s assets and liabilities are distinct from those of the shareholders. As a result, shareholders’ personal assets won’t be in danger of being taken by creditors if the firm experiences financial difficulty due to regular commercial operations.
The limited company’s ownership is easily severable, and many of these businesses have been handed down through the generations. Membership in a limited business is subject to the company’s regulations and laws, unlike a public company, in which anybody can purchase shares.
An entity with restricted liability may be “limited by shares” or “limited by guarantee.” When shares govern a corporation, one or more shareholders own it, and at least one director runs it. A firm limited by guarantee is controlled by at least one director and owned by one or more guarantors.
Due to restricted liability, the main advantage of a limited company is the separation of assets and income from the business, owners, and investors. Accordingly, if a business fails, shareholders will only suffer losses equal to their initial investment and nothing more; creditors or other stakeholders will not be able to seize owners’ personal property or income. Investors are more willing to risk capital due to limited liability because their losses are also constrained.
Benefits of Limited Companies
A limited company filing has a lot of advantages. These are a few of them:
- A limited company’s directors and employees are separate legal entities.
- A limited company structure offers a barrier between the company’s financial affairs and its owners.
- A limited company is permitted to possess assets and keep any post-tax profits.
- A limited company has the authority to sign its contracts.
- In exchange for this benefit, limited firms must pay several taxes, including capital gains and value-added tax (VAT).
- In contrast, since there is no legal separation between the firm and its owners, unincorporated businesses like sole proprietorships and conventional partnerships do not provide full limits on liability for owners. Such a company’s owners would be liable for its debts if it went bankrupt.
Variations of a Limited Company
Although these regulations may differ significantly from one country to the next, many nations have laws that regulate the formation of limited companies. For instance, the United Kingdom has private and public limited companies.
Private limited companies are not allowed to make public share offerings. Nevertheless, these are the most typical formats for small firms. Public limited companies may sell shares to the general public to raise money.
Limited businesses and LLPs, however, have different organizational structures.
In many countries, there are both public and private limited companies. For instance, in Germany, GmbH stands for private limited corporations that cannot issue shares, whereas Aktiengesellschaft (AG) stands for public limited firms that can sell shares.
Let’s now discuss how the following characteristics are used to distinguish distinct company types:
Various Sorts of Businesses Based on Membership
The number of members (shareholders) determines how well-known companies, such as private and public companies, are defined. Any person or corporate body may join any corporation except OPC. Even foreign nationals or non-resident Indians (NRIs) are welcome to become members of these companies.
- Private limited company: A private limited company can have up to 200 members at once, with a minimum of 2. The aforementioned statutory limit shall at all times apply.
- Public company: A public business may have an unlimited number of members. However, the bare minimum of members is provided. For registration, a general business must have at least seven members. These public companies include those with stock market listings. Public offerings are one way for these companies to obtain funding from the general public.
Various Company Types, According to Liability
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Company limited by shares
In this kind of corporation, the capital is introduced as shares or a smaller portion of the company’s total assets, known as shares. The number of equity shares a shareholder owns corresponds to their ownership interest in the company. The shares are thought of as the shareholder’s equity in the company.
If the business requires additional funding, shares may be issued for subscription by shareholders. In this type of corporation, the members’ obligations are limited to the unpaid money on the subscribed shares.
This kind of corporation can also be registered as a public limited company, an OPC, or a private limited company, depending on the kind and number of members.
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Limited by guarantee company
A private or public limited company, with or without the split of capital into shares, maybe the legal form of the corporation. In this situation, the money that the members must provide is assured. The subscriber to the memorandum subscribes to it and signs their name next to the amount insured.
These companies, as noted, may also issue shares, and the owners of those shares are also accountable for the outstanding balance of those shares. However, holding shares is not taken into account when assessing ownership.
Company Types Based on Listing
The companies are separated into listed and unlisted businesses depending on their capacity to raise capital. The opposite is unnecessary, but public corporations are not obliged to be listed. An unlisted firm could be a private or public limited corporation.
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Listed company
A listed company has registered on multiple respected stock exchanges inside or outside India. Shares of the listed corporations are freely traded on the stock exchanges. They must follow the regulations set forth by the Securities Exchange Board of India (SEBI).
If a corporation wishes to list its bonds or shares on stock exchanges, it must make a prospectus available to the general public for subscription. A company can list its shares through an initial public offering (IPO); in contrast, a firm already listed can have a further public offering (FPO).
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Unlisted company
A company is considered unlisted if its shares cannot be freely traded on established stock exchanges and are not listed there. These companies obtain the funding they require from financial institutions, private placements, friends, family, and other sources. An unlisted company must become a public corporation and publish a prospectus to offer its securities on stock exchanges.
Conclusion
Our examination of a limited company’s key characteristics can be summed up in the following sentences:
- Limited liability business organizations, in which the owners’ assets and income differ from the company’s assets and revenue, are referred to as limited companies.
- As a result, owners’ potential losses are restricted to the amount they invested, and their assets and income are excluded.
- Limited companies can take on a variety of shapes and are frequently identified by the initials Ltd., PLC, and LLC, to name a few.
