Meaning of Company and its Classification


A company is a voluntary association of individuals formed to carry on business to earn profits or for non profit purposes. These persons contribute towards the capital by buying its shares in which it is divided. A company is an association of individuals incorporated as a company possessing a common capital i.e. share capital contributed by the members comprising it for the purpose of employing it in some business to earn profit.

“As per Companies Act 1956, a company is formed and registered under the Companies Act or an existing company registered under any other Act”.

Types of Companies:

Companies can be classified under the following heads:

1. On the basis of formation.

2. On the basis of liability.

3. On the basis of ownership.


1. On the basis of formation: On the basis of formation companies can be categorised as:

(a) Statutory Company: A company formed by a Special Act of parliament or state legislature is called a Statutory Company. Reserve Bank of India, Industrial Financial Corporation of India, Life Insurance Corporation of India, Delhi State Finance Corporation are some of its examples.

(b) Registered Company: A company formed and registered under the Companies Act, 1956 or earlier Companies Acts is called a Registered Company. The working of such companies is regulated by the provisions of the Companies Act.


2. On the basis of liability: On the basis of liabilty, companies can be catagorised as:

(a) Company limited by shares: The liability of the member of such company is limited to the face value of its shares.

(b) Company limited by guarantee: The liabilty of each member of such company is limited to the extent of guarantee undertaken by the member. It may arise in the event of its being wound up.

(c) Unlimited Company: The company not having any limit on the liability of its members, is called an unlimited company. Liability in such a case extends to the personal property of its shareholders. Such companies do not use the word ‘limited’ at the end of their name.

(d) Company under section 25: A company created under section-25 is to promote art, culture and societal aims. Such companies need not use the term limited at the end of their name. Punjab, Haryana, Delhi chambers of commerce, etc. are the examples of such companies.


3. On the basis of ownership: On the basis of ownership, companies can be catagorised as :

(a) Private Company: A private company is one which by its Articles of Association :

(i) restricts the right of members to transfer its shares;

(ii) limits the number of its members to fifty (excluding its past and present employees);

(iii) prohibits any invitation to the public to subscribe to its shares, debentures.

(iv) The minimum paid up value of the company is one lakh rupees (Rs 100000). The minimum number of shareholders in such a company is two and the company is to add the words ‘private limited’ at the end of its name. Private companies do not involve participation of public in general.

(b) Public Copmpany: A company which is not a private company is a public company. Its Articles of association does not contain the above mentioned restrictions. Main features of a public company are : (i) The minimum number of members is seven.

(ii) There is no restriction on the maximum number of members.

(iii) It can invite public for subscription to its shares.

(iv) Its shares are freely tansferable.

(v) It has to add the word ‘Limited’ at the end of its name.

(vi) Its minimum paid up capital is five lakhs rupees (Rs 500,000).

(c) Government Company: A Government company is one in which not less than 51% of its paid up capital is held by (1) Central Government or (2) State Government, or (3) partly by Central Government and partly by State Governemt. Example of a Government company is Hindustan Machine Tools Limited, (HMT) State Trading Corporation (STC). Minerals as metals training corporation (MMTC).

(d) Foreign company: A foreign company is one which is incorporated outside India but has a place of business in India, for example Philips, L.G, etc. standard materials.

(e) Holding company and Subsidiary company: A holding company is a company which controls another company (called subsidiary company) either by acquiring more than half of the equity shares of another company or by controlling the composition of Baord of Directors of another company or by controlling a holding company which controls another company.

(f) Listed company and unlisted company: A company is required to file an application with stock exchange for listing of its securities on a stock exchange. When it qualifies for the admission and continuance of the said securities upon the list of the stock exchange, it is known as listed company. A company whose securities do not appear on the list of the stock exchange is called unlisted company.