[FAQs] on Type of Companies in India

Unlimited Company [Section 2(92)]: Unlimited company means a company not having any limit on the liability of its members. Thus, the maximum liability of the member of such a company, in the event of its being wound up, might stretch up to the full extent of their assets to meet the obligations of the company by contributing to its assets.

The members of an unlimited company are not liable directly to the creditors of the company. The liability of the members is only towards the company and in the event of its being wound up only the liquidator can ask the members to contribute to the assets of the company which will be used in the discharge of the debts of the company.

An unlimited company may or may not have share capital.

As per Section 2(92) of the Companies Act, 2013, unlimited company means a company not having any limit on the liability of its members. Thus, the maximum liability of the member of such a company, in the event of its being wound up, might stretch up to the full extent of their assets to meet the obligations of the company by contributing to its assets.

The members of an unlimited company are not liable directly to the creditors of the company. The liability of the members is only towards the company and in the event of its being wound up only the liquidator can ask the members to contribute to the assets of the company which will be used in the discharge of the debts of the company.

Small Company [Section 2(85)]: Small company means a private company,

(i) Paid-up share capital of which does not exceed ` 4 Crore or such higher amount as may be prescribed which shall not be more than ` 10 Crore and

(ii) Turnover of which as per its last profit and loss account does not exceed ` 40 Crore or such higher amount as may be prescribed which shall not be more than ` 100 Crore.

Nothing in this definition shall apply to: [This means following companies cannot be small companies]

(a) Holding or a subsidiary company

(b) Company registered u/s 8

(c) Company or body corporate governed by any Special Act.

Small Company [Section 2(85)] : TP Pvt. Ltd. shall be treated as small company if its ‘paid-up share capital’ is below ` 4 Crore AND ‘turnover’ is below ` 40 Crore.

Small Company [Section 2(85)]: Small company means a private company,

(i) Paid-up share capital of which does not exceed ` 4 Crore or such higher amount as may be prescribed which shall not be more than ` 10 Crore and

(ii) Turnover of which as per its last profit and loss account does not exceed ` 40 Crore or such higher amount as may be prescribed which shall not be more than ` 100 Crore.

Nothing in this definition shall apply to: [This means following companies cannot be small companies]

(a) Holding or a subsidiary company

(b) Company registered u/s 8

(c) Company or body corporate governed by any Special Act.

Inactive Company: Inactive Company means a company:

• •  Which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last 2 financial years or
  • Which has not filed financial statements and annual returns during the last 2 financial years.

Associate Company [Section 2(6)]: Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

Significant Influence: Significant Influence means control of at least 20% of total share capital, or of business decisions under an agreement.

Following are the main points of distinction between subsidiary & associate company:

Holding and Subsidiary companies are relative terms. A company is a holding company of another if the other is its subsidiary.

Holding Company [Section 2(46)]: Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Subsidiary Company [Section 2(87)]: Subsidiary company in relation to any other company (that is to say the holding company), means a company in which the holding company –

(a) Controls the composition of the Board of Directors or

(b) Exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies.

However, prescribed class or classes of holding companies shall not have layers of subsidiaries beyond the prescribed limit.

The composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors

(1) Holding and Subsidiary companies are relative terms. A company is a holding company of another if the other is its subsidiary.

Holding Company [Section 2(46)]: Holding company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Subsidiary Company [Section 2(87)]: Subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company –

(i) Controls the composition of the Board of Directors or

(ii) Exercises or controls more than 50% of the total voting power either at its own or together with one or more of its subsidiary companies.

As per Section 2(68) of the Companies Act, 2013, a private company means a company, which has a minimum paid-up capital as may be prescribed, and by its articles:

(a) Restricts the right to transfer its shares.

(b) Limits the number of its members to 200 excluding past and present employee.

(c) Prohibits any invitation to the public to subscribe for any securities.

Issue of debentures by private company: A private company may issue security to any person (number of persons not exceeding 200).

Acceptance of deposits from members by private company: In terms of provisions of Section 73(2) read with Exemption Notification dated 5^th June, 2015, a private company may accept from its members monies not exceeding 100% of aggregate of the paid-up share capital and free reserves, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the RBI, accept deposits from its members on such terms and conditions, as may be agreed upon between the company and its members, subject to the fulfilment of certain conditions, as provided under the Act.

Following are the main points of distinction between public and private company:

As per Section 2(71) of the Companies Act, 2013, Public Company means a company which –

(a) is not a private company and

(b) has a minimum paid-up share capital as may be prescribed.

However, a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. This means, if private company is subsidiary of public company then it will be treated as public company.

One Person Company [Section 2(62)]: One Person Company means a company which has only one person as a member.

One Person Company has to be formed as a private company. [Section 3(1)(c)]

Type of OPC [Section 3(2)]: An OPC may be formed either as:

• Company limited by shares or
• Company limited by guarantee or
• Unlimited liability company.

Thus, it is incorrect to say that one person company shall be formed only as a company limited by shares.

Following are the provisions of the Companies Act, 2013 relating One Person Company:

(a) One Person Company: As per Section 2(62), One Person Company means a company which has only one person as a member.

(b) Eligibility to incorporate OPC: A natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company (OPC).

(c) Directors in OPC: As per section 149(1), One Person Company may have more than one director on its Board. But OPC should have only one member. Hence, Axar may incorporate an OPC and he and his wife may be the directors of the company.

(d) Meeting of Board of Directors of OPC: As per section 173(5), it is required to hold at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings should not be less than 90 days.

For OPC having only one director, the provisions of Section 173 [Meetings of the Board] and Section 174 [Quorum for meeting of Board] will not apply.

(e) No AGM for OPC: As per Section 96(1), OPC need not hold annual general meeting.

(f) Annual return of OPC: As per section 92(1), the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of company.

(g) Signing of financial statement & Board’s Report: As per Section 134(1), financial statement and Board’s Report can be signed only by one director.

Relevant provisions of the Rules 3 & 4 of the Companies (Incorporation) Rules, 2014 in relation to given case are as follows:

Nominee: Only a natural person who is an Indian citizen and resident in India shall be a nominee for the sole member of OPC. For this purpose “Resident in India” means a person who has stayed in India for a period of not less than 120 days during the immediately preceding financial year.

A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company.

No minor shall become member or nominee of the One Person Company or can hold share with beneficial interest.

Consent of nominee: The subscriber to the memorandum of OPC shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person Company.

Withdraw of consent by nominee: The person nominated by the subscriber or member of OPC may, withdraw his consent by giving a notice in writing to such sole member and to the One Person Company. However, the sole member shall nominate another person as nominee within 15 days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person so nominated in Form No. INC-3.

Filing with ROC: The company shall within 30 days of receipt of the notice of withdrawal of consent file with the ROC, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member in Form No. INC-4 and the written consent of such another person so nominated in Form No. INC-3.

As per Rule 3 of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and whether resident in India or otherwise –

(a) shall be eligible to incorporate a One Person Company;

(b) shall be a nominee for the sole member of a One Person Company.

For this purpose “Resident in India” means a person who has stayed in India for a period of not less than 120 days during the immediately preceding financial year.

Producer Company [Section 378A(I)]: Producer Company means a body corporate having objects or activities specified in Section 378B and registered as Producer Company under the Companies Act, 2013 or under the Companies Act, 1956.

The objectives for which producer companies may be formed are laid down in Section 378B.

Every producer company shall deal primarily with the produce of its active members for carrying out any of its specified objects. This means there is an obligation on the producer company to deal primarily with the active members in conducting its activities.

Objects of Producer Company [Section 378B]: The objects of the Producer Company shall relate to all or any of the following matters:

(a) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit. However, the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution.

(b) Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members.

(c) Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.

(d) Providing education on the mutual assistance principles to its Members and others.

(e) Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its Members.

(f) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce.

(g) Insurance of producers or their primary produce.

(h) Promoting techniques of mutuality and mutual assistance.

(i) Welfare measures or facilities for the benefit of Members as may be decided by the Board.

(j) Any other activity, ancillary or incidental to any of the activities referred to in clauses (a) to (i) or other activities which may promote the principles of mutuality and mutual assistance amongst the Members in any other manner.

(k) Financing of procurement, processing, marketing or other activities specified in clauses (a) to (j) which include extending of credit facilities or any other financial services to its Members.

Every Producer Company shall deal primarily with the produce of its active Members for carrying out any of its objects specified in this section.

Following are the main points of distinction between LLP and Producer Company:

Investment of general reserves: As per Rule 5 of the Producer Companies Rules, 2021, a Producer Company shall make investments from and out of its general reserves in anyone or in combination of the following:

(a) In approved securities, fixed deposits, units and bonds issued by the Central Government or State Governments or co-operative societies or scheduled bank.

(b) In a co-operative bank, State co-operative bank, co-operative land development bank or Central co-operative bank.

(c) With any other scheduled bank.

(d) In any of the securities specified in section 20 of the Indian Trusts Act.

(e) In the shares or securities of any other inter-State co-operative society or any co-operative society.

(f) In the shares, securities or assets of public financial institutions specified in Section 2(72) of the Companies Act, 2013.