Types of Companies

The Companies Act, 2013 recognises several types of companies, classified mainly on the basis of the number and nature of their members and on ownership. The four types most relevant at this stage are the Private Company, the Public Company, the One Person Company (OPC), and the Government Company.

Private Company. Under Section 3(1)(b) of the Companies Act, 2013, a private company can be formed by two or more persons. Its articles of association must, among other things, restrict the right of members to transfer their shares, limit the number of members to 200 (excluding present and past employee-members), and prohibit any invitation to the public to subscribe for its securities. A private company's name ends with the words "Private Limited". Because it cannot raise capital from the general public, a private company is often used by family businesses or closely-held enterprises that still want the benefit of limited liability and a separate legal identity.

Public Company. Under Section 3(1)(a), a public company can be formed by seven or more persons, and the Act places no upper limit on its membership. A public company's name ends with the word "Limited". Unlike a private company, a public company may invite the general public to subscribe to its shares or debentures by issuing a prospectus, and its shares (if listed) can usually be freely bought and sold on a stock exchange.

One Person Company (OPC). Introduced for the first time by the Companies Act, 2013 (defined in Section 2(62)), an OPC is a company that has only one person as its member. Under Section 3(1)(c) a single person can form such a company, provided the sole member also nominates a "nominee" who will become the member of the company in the event of the original member's death or incapacity. An OPC lets a single entrepreneur enjoy the benefits of a separate legal entity and limited liability without needing to find a second partner or shareholder, something that was not legally possible before the 2013 Act.

Government Company. A Government company is defined by the Act as any company in which not less than 51 per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments. A Government company may itself be structured as either a private or a public company; what makes it a "Government company" is the pattern of ownership of its share capital, not a separate legal form. Examples of the kind of enterprise this category covers include large public-sector undertakings engaged in manufacturing, infrastructure, and services. …