Types of Companies | The Startup Process
So now that you have done all your homework, all the stakeholders are on board and you have the perfect business model in place, it is time to move to the step all entrepreneurs wait for the most i.e. setting up and registering the company. It is your vision coming to life and existing for posterity, long after you are gone. But before we move on to the guide on how to register your company/business, let us first discuss the different types of companies your startup can be registered as.
Different Types of Companies
Companies can be classified into different types based on their mode of incorporation, the liability of the members, and number of the members. The most common types of companies are:
- Royal Chartered Companies
- Statutory Companies
- Registered or Incorporated Companies
- Companies Limited By Shares
- Companies Limited By Guarantee
- Unlimited Companies
- Public Company (or Public Limited Company)
- Private Company (or Private Limited Company)
- One Person Company
Types Of Companies Based On The Mode of Incorporation
Companies can be classified into three types based on whether they are created by a special act, special order, or are registered just like any normal company.
Royal Chartered Companies
Royal Chartered Companies are companies created by the Royal Charter. This means they are granted power or a right by the monarch or by a special order of a king or a queen. Examples of Royal Chartered Companies are East India Company, BBC, Bank Of England, etc.
Statutory Companies are companies incorporated by means of a special act passed by the central or state legislature. They are mostly invested with compulsory powers and are responsible to carry out some special business of national importance. Some examples of statutory companies are The Reserve Bank of India (formed under RBI act, 1934), Life Insurance Corporation of India (formed under LIC Act, 1956).
Registered Or Incorporated Companies
All the other companies which are incorporated under the companies act passed by the government comes under this head. These companies come under existence only after they register themselves under the act and the certificate of incorporation is passed by the Registrar of companies. Google India Pvt Ltd is an example of incorporated companies.
Types Of Companies Based On The Number Of Members
Public Limited Company
The legal existence of a Public Limited Company is separate from its members (shareholders) and the liability of its members is also limited. Its existence is thus not affected by the retirement or death of its shareholders. A minimum of 7 members is needed to form a Public Limited company but there is no maximum limit on this. The company collects its capital by the sale of its shares to the shareholders. The shareholders of a company do not have the right to participate in the day-to-day management of the company, thus separating ownership from management. All the major decisions of the company are taken by the Board of Directors.
Private Limited Company
Private Limited (Pvt Ltd) companies have more than 2 and less than 50 members and their liability is limited or unlimited depending on the type of the company it is. Unlike Public Limited companies, here the transfer of shares is limited to its members and the general public cannot subscribe to its shares and debentures. Pvt Ltd companies are exempted from many rules and regulations which are applicable to Public Limited companies, for example, the need to file a prospectus with the Registrar, the need to hold the statutory general meeting or maintain annual reports etc. Also, it can start operations after receiving just the certificate of incorporation, whereas a Public Limited company needs a certificate of commencement as well. It is a great option if you want the advantages of limited liability and yet want greater control over your business and maintain its privacy. This is the most popular type of company for start-ups to be registered as.
One Person Company
One Person Company (OPC) as a company type was introduced in the Companies Act of 2013 in India. It is similar to a sole proprietorship but the owner shall have limited liability and thus his personal assets would not be at risk if losses need to be recovered or if the company is liquidated.
Types Of Companies Based On The Liability Of The Members
In case of liquidation, the members of a company can either be liable to pay even from their personal assets or to the extent of the face value of shares held by them. It all depends on how the company is registered as. Companies can be classified into three types based on the liability of the members. These are –
The liability of the shareholders is limited to the extent of the face value of shares held by them. Most Pvt Ltd companies are of this type.
Companies Limited By Guarantee
In these companies, in case of liquidation, the shareholders promise to pay a certain fixed amount to cover the liabilities of the company.
There is no limit on the liability of the shareholders. In case of liquidation, they might have to pay even from their personal assets to cover the liabilities of the company. This type of company is quite uncommon today due to obvious reasons.
There are a lot of options to choose from when you plan to register your startup. Make sure you research the pros and cons of each and register your firm accordingly. Now that you know about different types of companies, let’s move on to the guide on how to register your company.
The Startup Process
We know how important your dream business is to you. Therefore, we’ve come up with an all in one guide: The Startup Process to help you turn your vision into reality.