Companies can be classified in several ways depending on ownership, purpose, and scale. Classification is very important in regulating the operation of businesses, safeguarding stakeholders, and furthering the country's economic growth. Various types of companies have diversified benefits, regulations, and liabilities that may suit a business depending on its objectives and manner of operations. The two main divisions are private and public businesses. This guide will explain the meaning, structure, advantages, and compliance requirements of each type of company. Such details will help business owners make informed decisions while setting up or transforming their ventures.
Read about the Wages Act 1936.
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Types of Companies in India
India's corporate landscape is as vast and diverse as is the need of business and requirements of the industry or various interests of investors. Their legal structures define such a liability, ownership, tax, and regulatory demands, which make a great impact on these entities.
1. Private Limited Company (Pvt. Ltd.)
The Private Limited Company is the most common form of business structure in India. It is the best available form of business in India because of flexibility and protection from liability for shareholders.
Important Characteristics:
Ownership: Privately owned by shareholders, who can be a small group of people or individuals, and their shares are not available in the public.
Minimum Requirement: A minimum of two shareholders and two directors.
Liability: Shareholders are liable only to the extent of their shareholding.
Compliance: Subjected to annual reporting and audits.
Advantages:
Due to liability, more ease of access to funds from investors.
The owners retain control without any form of public interference.
Disadvantages:
Has higher requirements to comply than those for a sole proprietorship.
The shares cannot be publicly traded.
2. Public Limited Company (PLC)
Public Limited Companies are organizations whose shares are publicly quoted in a stock exchange, thus enabling the general public to acquire the shares. Most large organizations usually want to raise high capital and will form this type of organization.
Characteristics:
Ownership: Share ownership is publicly shared, and their shares can be acquired from the stock exchange.
Minimum Requirements: A PLC should have at least seven shareholders and three directors.
Liability: shareholders' liability is limited.
Compliance: SEBI compliance and corporate governance are followed.
Advantages:
Direct access to a larger capital pool.
Shares are transferrable, hence creating liquidity for the shareholders.
Disadvantages:
Greater compliance and regulatory oversight.
Subject to market vagaries, hence impacting the shareholder value.
3. One-Person Company (OPC)
OPC is an option wherein a single entrepreneur can incorporate a company with limited liability. OPC was introduced under the Companies Act 2013 and is for the sole proprietor who wants limited liability without having any other partners.
Key Features:
Ownership: Proprietorship is owned by one individual.
Minimum Requirements: One director is enough.
Liability: Liability is only of the owner's investment
Compliance: It provides easier reporting compared to Pvt. Ltd. and PLC.
Advantages:
For entrepreneurs who are sole proprietor; they want limited liability
Easier to manage a proprietorship compared to Pvt. Ltd. Company.
Disadvantages
Generally, proprietorships cannot be used for larger-sized businesses; it can also be converted to the said size.
Funding can be restricted for a particular source compared to a Pvt. Ltd.
4. Limited Liability Partnership (LLP)
LLPs are a partnership as well as a limited liability company. They are pretty much in vogue among professional services providers because of flexibility and liability protection.
Key Features:
Ownership: The ownership by partners with limited liability
Minimum Requirement: It demands at least two designated partners.
Liability: Liabilities are limited to contributions of each partner.
Compliance: The compliance in comparison with companies is moderate by annual filings.
Advantages:
Flexibility in operating and liability protection.
Maximum number of partners is not restricted.
Disadvantages:
The firm may raise capital difficulties since shares can not be transferred.
The partners are liable in case of failure to comply
5. Partnership Firm
A partnership firm is one of the firms owned by two or more individuals who share profits and responsibilities as well as liability as stipulated in their partnership agreement.
Key Features
Ownership: Owned by partners; partners own it in equal or disproportionate shares of management control and profits
Minimum Requirement: Must have two partners at the minimum.
Liability: The partner is liable personally for debts of a firm
Compliance: Minimal regulatory monitoring, with registered firms coming under only basic monitoring, and some countries have virtually no laws regarding this firm.
Advantages
Plain corporate structure with reduced legal restrictions.
Common and joint liabilities and financial obligations.
Disadvantages:
No single partner has limit liability with another.
No formal identity due to the structure that harms the reputation
6. Sole Proprietorship
A Sole Proprietorship is when one sole person owns or runs his or her venture. Typically, it will be taken for small-level business undertaking.
Characteristics;
Ownership: All owned and directed by owner
Minimum Requirement: Corporate Form no regulation needed
Liability: Owners unlimited liability
Compliance: There are very few regulatory hurdles.
Advantages:
It is very easy to form with no requirement of registration.
The owner enjoys complete authority.
Disadvantages
Mutual liability, which holds personal assets liable.
Limited ability to mobilize capital and expand.
7. Section 8 Company
Section 8 Companies are not-for-profit organizations that are formed to pursue objects related to art, science, education, charity, and social welfare. They are exempted from taxes and fall under the Companies Act 2013.
Features
Ownership: The company is owned by members or trustees for a social motive.
Minimum Requirements: Requires at least two members.
Liability: Members have limited liability.
Compliance: Under strict regulatory supervision, and tax-exempt.
Benefits:
Tax exemptions on charitable activities.
Credibility for donation and grants.
Drawbacks:
Cannot give the profits to members.
Subject to tight regulatory compliance.
8. Joint Venture (JV)
A Joint Venture is a short-term business alliance between two or more organizations for a particular project or purpose. JVs are usually undertaken for research, development, or market entry.
Key Characteristics:
Ownership: Shared between entities according to agreement.
Minimum Requirements: According to the contractual terms between partners.
Liability: According to the joint venture agreement.
Compliance: According to the structure of the venture. Company, partnership, etc.
Benefits:
Access to resources and market expertise.
Shared risks and financial responsibilities.
Disadvantages:
Limited control over partner actions.
Differences in management approaches can lead to conflicts.
9. Foreign Company
Foreign is that company which is incorporated outside India but functions by its branches, liaison offices, or subsidiaries here. These companies can enter Indian market and want to enter the same.
Key Characteristics:
Ownership: Foreign mother company.
Minimum Requirements: Needs to be registered with RoC.
Liability: Is restricted to the operations in India only.
Compliance: Is governed under FEMA.
Benefits:
Opens the doors of Indian Market for the foreign business
Utilizes local talent and resources
Drawbacks
Multiple regulatory requirements are put on the foreign company's shoulders.
Extremely high compliance costs because of the cross-border operations.
Also, read the impact of foreign investment in India.
Conclusion
The different kinds of companies in India will be beneficial to any interested person thinking of opening a business venture, investing, or forging partnerships there. From the small entrepreneur to the big multinational, all cater to various business scales, purposes, and types of ownership, each providing different benefits. The Indian business landscape is a rich field offering ample choices to facilitate the growth and success of all.
Check out the list of the top 11 biggest law firms in India.
Types of Companies in India FAQs
1. What is a private limited company in India?
A Private Limited Company is an organization owned by the shareholders who are private. It provides for ltd liability protection and prohibition of public trading in its shares and is usually chosen by startups and family-owned firms.
2. How does an LLP differ from a partnership firm?
An LLP provides limited liability to the partners; this means they are liable only up to their contributions. In a traditional partnership firm, partners have unlimited liability; they are personally liable for debts.
3. Can anyone alone start a company in India?
Yes, it is possible; one can form an OPC, or One Person Company. An OPC offers limited liability and single ownership.
4. What is the motive to form a Section 8 company?
Section 8 Companies They are not for profit organizations and do only carry out activities for charitable purposes, social welfare, religious or any other objects -- not for gain. They are tax-exempt, but cannot declare dividends or distribute profits
5. How does a foreign company operate in India?
A foreign company can perform business operations in India through a branch/ subsidiary / liaison office, with RBI permission and compliance with FEMA guidelines.
