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CLASSIFICATION OF COMPANIES

Manjeet Kumar Sahu*

Abstract

The growth of economy and increase in the complexity of various business operation have

augmented the scope to classify the companies in various titles. This Article is reflecting upon

the existing and proposed companies under various legislation and tries to identify the various

kinds of companies which are in existence and it has also included those companies which have

been proposed under the companies Bill, 2011. It further discuss about the scope and regulatory

 framework of such companies. This Article vividly describes all the possible mode of classifying

companies. The main purpose of classification of companies is to maintain the homogeneity and

apparently regulate those companies with similar legal framework.

Introduction

The word „Company‟ has no strictly technical or legal meaning1.The word 'Company' is an

amalgamation of the Latin word 'Com' meaning "with or together" and 'Pains' meaning "bread".

Originally, it referred to a group of persons who took their meals together. A company is nothing

 but a group of persons who have come together or who have contributed money for some

common purpose and who have incorporated themselves into a distinct legal entity in the form of

a company for that purpose.

In generalized term, Company is an artificial person created by law and destroyed by law. It is

an association of person to start a business under a legal guidance. The Precise definition of

country varies from country to country. Companies, whether public or private, are anindispensable part of an economy. They are the modes through which a country grows and

expands worldwide. Their performance is an important parameter of a countries economic

 position.

*3rd Year, Int. B.A LL.B(Hons.) , University of Petroleum and Energy Studies1 Buckley J in Stanley Re,(1906) 1 Ch 131,134

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Lord Justice Lindley2  defined company as” an association of many persons who contribute

money or money‟s worth to a common stock and employ it for a common purpose.  The common

stock so contributed is denoted in money and is the capital of the company. The persons who

contribute it or to whom it belongs are members. The proportion of capital to which each

member is entitled is his share.

In the terms of the Companies Act, 1956 “Company means a company registered under this act3.

In common Law, a company is a “legal person or „legal entity‟, separate from and capable of

surviving beyond the lives of its members.4” 

In modern times the functioning of companies has assumed a new role in society5.It has become

the most dominant form of business organization6. It is now accepted on all hands, even in

 predominantly capitalist countries that a company is not a property. The traditional view that a

company is the property of its shareholders is now an exploded myth. A company, according to

the new socio-economic thinking, is a social institution having duties and responsibilities

towards the community in which it functions7.

Classification of Companies

The corporate form can take many shapes in order to respond efficiently to the environment.

Company Law should therefore recognize a multiple classification of companies. The criteria for

classification on the basis of the forms is discernible but recognizes that such classification can

never be exhaustive. It is necessary to recognize the potential for diversity in the forms of

companies and rather than seeking to regulate specific aspects of each form, seek to provide for

 principles that enable economic inter-action for wealth creation on the basis of clear and widely

accepted principles. 

I. On the Basis of Mode of Incorporation, Companies can be classified into three categories.

2 He was a prolific author widely known for his work on Partnership and company.3 § 3(i) of Companies Act,19564  Salomon v. Salomon & Co.,[1895-99] All ER Rep 33. See also, Graf Evans: what is a Company (1910) 26 LQR

2595 Dr. N.V. Paranjape,”COMPANY LAW”,(4th Edn.,2010),Central Law Agency, Allahabad at p.356 Lee Loevinger,”The Law of Free Enterprise”, (1949) at p.59 7 P.N. Bhagwati CJI in National Textile Worker‟s Union v. P.R. Ramkrishnan AIR 1983 SC 759 commented upon

the new dimenstions of companies.

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Chartered Company: A Company is incorporated by a charter granted by Monarch and is

regulated by that charter. The powers and nature of business of a chartered company are defined

 by the charter which incorporates it. A chartered company has wide powers. It can deal with its

 property and bind itself to any contracts that any ordinary person can. In case the company

deviates from its business as prescribed by the charted, the Sovereign can annul the latter and

close the company.

Ex.- East India Company came into being by the grant of a Royal Charter. Such Companies does

not exist in India now.

Statutory Company: A Company which is created by a Special Act of the Legislature and is

governed by the provisions of that Act. Such companies do not have any memorandum or

articles of association. They derive their powers from the Acts constituting them and enjoy

certain powers that companies incorporated under the Companies Act have. Alternations in the

 powers of such companies can be brought about by legislative amendments.

The provisions of the Companies Act shall apply to these companies also, except in so far as

 provisions of the Act are inconsistent with those of such Special Acts8.

These companies are generally formed to meet social needs and not for the purpose of earning

 profits.

Ex.- State Bank of India , Industrial Finance Corporation of India are Statutory Companies.

Registered Company: A Company brought into existence by registration of certain documents

under the Companies Act,1956. Such companies come into existence only when they are

registered under the Act and a certificate of incorporation has been issued by the Registrar of

Companies. This is the most popular mode of incorporating a company.

Registered companies may further be divided into three categories on the basis of liability.

i) Companies limited by Shares : The main attribute of limited companies which attracts the

investors is limited liability of the share-holders. The Liability does not fluctuate but limited to

the extent of the unpaid value of such shares9. These types of companies have a share capital and

8 §. 616 (d) of Companies Act,19569 Supra, note 5 at p.60

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the liability of each member or the company is limited by the Memorandum to the extent of face

value of share subscribed by him. The amount remaining unpaid on the share can be called up at

any time during the lifetime of the company or at the time of winding up10

. In other words,

during the existence of the company or in the event of winding up, a member can be called upon

to pay the amount remaining unpaid on the shares subscribed by him. Such a company is called

company limited by shares. A company limited by shares may be a public company or a private

company. These are the most popular types of companies.

The Supreme Court has emphasized that the right of a guarantee company to refuse to accept the

transfer by a member of his interest in the company is on a different footing than that of a

company limited by shares.

ii) Companies Limited by Guarantee: These types of companies may or may not have a share

capital. But if it has share capital , it is subject to the same restriction as to reductions as the

capital of a company limited by shares11

.Each member promises to pay a fixed sum of money

specified in the Memorandum in the event of liquidation of the company for payment of the

debts and liabilities of the company12

.This amount promised by him is called „Guarantee‟. The

Articles of Association of the company state the number of member with which the company is

to be registered13

.Such a company is called a company limited by guarantee14

. Such companies

depend for their existence on entrance and subscription fees. The liability of the member is

limited to the extent of the guarantee and the face value of the shares subscribed by them, if the

company has a share capital. If it has a share capital, it may be a public company or a private

company.

The amount of guarantee of each member is in the nature of reserve capital. This amount cannot

 be called upon except in the event of winding up of a company. Non-trading or non-profit

companies formed to promote culture, art, science, religion, commerce, charity, sports etc. are

generally formed as companies limited by guarantee.

10 S.S. Gulsan, “COMPANY LAW”,(2nd Edn,2009),Excel Books, New Delhi at p.3411 § 100 of Companies Act,195612 § 13(3) of Companies Act,195613 § 27 (2) of Companies Act,1956; Rajeev Kwatra v. Sunil Khanna,(2006) 129 Comp Cas 373 CLB14 Supra Note 5 at p.60

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One Person Company means a company which has only one person as a member 22

. Though new

in India, OPC's are in existence in quite a few countries across the world, notably China23

. It is a

one shareholder corporate entity, where legal and financial liability is limited to the company

only. The One Person Company will be formed as a private limited company. The words „„One

Person Company‟‟ shall be mentioned in brackets below the name of such company, wherever

its name is printed, affixed or engraved24

.

Where an OPC enters into a contract with the sole member of the company who is also a

director, the company should, unless the contract is in writing, ensure that the terms of the

contract or offer are contained in the memorandum or are recorded in the minutes of the first

Board meeting held after entering into the contract and every such contract should be informed

to the Registrar 25

.

It was an effort of JJ Irani Expert Committee who recommended for the formation of one-person

company (OPC). It has suggested that such an entity may be provided with a simpler legal

regime through exemptions so that the single entrepreneur is not compelled to fritter away time,

energy and resources on procedural matters.

At present, an entrepreneur in India has to find another person to implement his skills through

incorporation of a company while in the UK, Australia, Singapore, Pakistan, etc, a single person

can form a company26

.

2. Private company :A private company  is that company which by its articles of association

limits the number of its members to fifty, excluding employees who are members or ex-

employees who were and continue to be members; restricts the right of transfer of shares, if any;

 prohibits any invitation to the public to subscribe for any shares or debentures of the company27

. 

Where two or more persons hold share jointly, they are treated as a single member. According to,

the minimum number of members to form a private company is two28

. A private company must

22

 Clause 2(62) of the Companies Bill, 201123  Mohan R . Lavi ,”The One-Person Company Concept ” available at http://www.thehindubusinessline.com

/industry-and-economy/taxation-and-accounts/article2686921.ece accessed on 17th Nov,201224 Proviso to Clause 12(3) of the Companies Bill,201125 Supra, note 2326  Preeti Malhotra,”  One-person company is a great prospect for lone entrepreneur ” available at http://articles.

economictimes.indiatimes.com/2007-12-26/news/27683483_1_nominee-director-opc-entrepreneur  accessed on 17th

 Nov, 201227 § 3(1) (iii) of Companies Act, 195628 § 12 of Companies Act ,1956

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use the word “Pvt” after its name. Private companies represent a different set of relationships in

terms of ownership, risk and reward as compared to public companies29

.

A Private Company has been described as an incorporated partnership, combining the

advantages of the privacy of partnership and the permanence and origin of the corporate

constitution. Private Companies can keep their affairs to themselves30

.Private Companies exist

with the sanction and encouragement of the Legislature31

. They enjoy the benediction of the

Legislature.

Characteristics or Features of a Private Company. The main features of a private of a private

company are as follows :

i)  A private company restricts the right of transfer of its shares. The shares of a private

company are not as freely transferable as those of public companies. The articles

generally state that whenever a shareholder of a Private Company wants to transfer

his shares, he must first offer them to the existing members of the existing members

of the company. The price of the shares is determined by the directors. It is done so as

to preserve the family nature of the company‟s shareholders. 

ii)  It limits the number of its members to fifty excluding members who are employees or

ex-employees who were and continue to be the member. Where two or more persons

hold share jointly they are treated as a single member. The minimum number of

members to form a private company is two.

iii)  A private company cannot invite the public to subscribe for its capital or shares of

debentures. It has to make its own private arrangement.

Private Company can also be broadly classified as:

a)  Purely Private Company32

 ,and

b)  Private Company which is a subsidiary of a company which is not a private

Company33

.

29 Supra ,note 2130 Edward Manson, ”The Evolution of the Private Company”,(1910) 26 LQR 11 31 Younger LJ in Commr of Indian Revenue v. Sansom,[1921] 2 KB 49232 § 3(1) (iii) of Companies Act, 195633 § 3(1)(iv)(c) of Companies Act,1956

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3. Public companies: A company which is not a private company and has minimum paid up

capital of 5 lakh rupees or more, or a private company which is a subsidiary of a company which

is not a private company34

.Public company may be said to be an association consisting of not

less than seven members, which is registered under the Companies Act and which is not a private

company within the meaning of the Act. The shares and debentures of a public company may be

listed on a Stock Exchange and are offered to public for sale35

.

There is no restriction on transfer of shares in case of public company. A Public Company

having a share capital shall file with the Registrar a statement in lieu of prospectus signed by all

the directors named therein, in case it has not issued a prospectus36

. A Public company cannot

commence its business unless certificate to commence business is issued by the Registrar of

Companies in accordance with Section 149 of the Companies Act.

Deemed Public Company: Section 43-A of the Act deals with circumstances where a private

company is deemed to be a public company. A Private Company may continue to retain the

 provisions as required under Section 3(1)(iii) of the Act and the number of its members may also

 be reduced below seven37

. It is for this reason the supreme Court stated that a deemed public

company is neither a private company nor a public company but company in third category38

.

Even, The Company Law Board (CLB) in Hillcrest Realty Sdn. Bhd v. Hotel Queenroad (P)

Ltd.39

held that the basic characteristics of a private company do not get altered by the mere fact

that such a company is a subsidiary of a public company.

Though, Section 43-A has been omitted but Section 43-A Sub-section (2-A) still subsist after the

Amendment made in the year 2000.This provision states that when a deemed public company

 becomes a private company after this amendment, the company has to inform the Registrar and

latter would make necessary changes in his records. This process needs to be completed within 4

weeks from the date of the company‟s application.  

34 § 3(1)(iv) of Companies Act,195635 Supra, note 5 at p.6536 § 70 of Companies Act,195637 Supra, note 5 at p.6538 Needle Industries(India) Ltd. v. Needle Industries Newey(India) Holding Ltd.,AIR 1981 SC 129839 Hillcrest Realty Sdn.Bhd vs Hotel Queenroad (P) Ltd [(2006) 72 CLA 245 CLB]

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III. On the basis of membership pattern and manner of access to capital , Public Companies

can further classified as: 

• Listed Company: Company whose shares are traded on an on an official stock exchange40

.

It means a public company which has its securities listed on any recognized stock exchange41.A

company is said to be “listed” ,”quoted” or “have a listing” if its shares can be traded on a stock

exchange. It is also known as Quoted Company42

. It must adhere to the listing requirements of

that exchange, which may include how many shares are listed and a minimum earnings

level43

.After the amendment made in the year 200044

, every list company making initial public

offer of any security for a sum of rupees ten crores or more, shall issue the same only in

dematerialized form by complying with the requisite provisions of the Depositories Act, 1996. A

listed public company may, and in the case of resolutions relating to such business as the CentralGovernment may, by notification, declare to be conducted only by postal ballot, shall, get any

resolution passed by means of a postal ballot, instead of transacting the business in general

meeting of the company45

.

• Unlisted Company: A Public company whose shares are not on the official list of shares

traded on a particular stock market46

. A publicly unlisted company is a company that can have

an unlimited number of  shareholders to raise capital for any commercial venture. Companies

which are not listed publicly are more likely to engage in profit maximizing behavior as their

share capital structure makes it very easy to give its members financial returns. Unlisted

companies are usually too small to qualify for a stock exchange listing, and do not usually

advertise for investors47

. However they tend to be larger than companies limited by guarantee.

Unlisted companies are very small and do not trade on an exchange because they do not meet

40  “Financial Times Lexicon” available at http://lexicon.ft.com/Term?term=listed-company  accessed on 15th 

 Nov,201241

  Supra, note 10 at p.36; also, § 2(23A) of companies Act,1956 available at http://www.mca.gov.in /Ministry/ pdf/Companies_Act_1956_13jun2011.pdf   accessed on 18th Nov,201242 Graeme Pieters, ” Listed Company”, available at http://moneyterms.co.uk/ accessed on 15th ,Nov,201243 Supra, note 5 at p.40.44 Insertion of § 68 B in Companies Act,195645 § 192 A of Companies Act,1956:inserted by Companies (Amendment) Act,2000 w.e.f 13-12-200046  Longman Business English Dictionary,available at  http://lexicon.ft.com/Term?term=unlisted-company  accessed

on 15th Nov,201247  “What is an Unlisted Public Company?” available at http://www.companyplanners.com.au/faqs/unlisted.shtml 

accessed on 15th Nov,2012.

http://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Shareholdershttp://lexicon.ft.com/Term?term=listed-companyhttp://lexicon.ft.com/Term?term=listed-companyhttp://moneyterms.co.uk/http://moneyterms.co.uk/http://moneyterms.co.uk/http://lexicon.ft.com/Term?term=unlisted-companyhttp://lexicon.ft.com/Term?term=unlisted-companyhttp://lexicon.ft.com/Term?term=unlisted-companyhttp://www.companyplanners.com.au/faqs/unlisted.shtmlhttp://www.companyplanners.com.au/faqs/unlisted.shtmlhttp://www.companyplanners.com.au/faqs/unlisted.shtmlhttp://lexicon.ft.com/Term?term=unlisted-companyhttp://moneyterms.co.uk/http://lexicon.ft.com/Term?term=listed-companyhttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Company

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market capitalization requirements. The Government of India have passed the Unlisted Public

Companies Amendment Rules, 2011 for the preferential allotment in the unlisted public

companies48

.

IV. On the basis of Control over the management, Companies may be classified into: 

1. Holding companies, and

2. Subsidiary Company

1. Holding Company:A company is known as the holding company of another company if it has

control over the other company. A company qualifies as a holding company when it has the

 power to control the composition of the board of directors of another company or holds a

majority of its shares. According to Sec 4(4) a company is deemed to be the holding company of

another if, but only if that other is its subsidiary.A company may become a holding company of another company in either of the following three

ways:-

a) By holding more than fifty per cent of the normal value of issued equity capital of the

company; or

 b) By holding more than fifty per cent of its voting rights; or

c) By securing to itself the right to appoint, the majority of the directors of the other company,

directly or indirectly.

The other company in such a case is known as a “Subsidiary company”. Though the two

companies remain separate legal entities, yet the affairs of both the companies are managed and

controlled by the holding company. A holding company may have any number of subsidiaries.

The annual accounts of the holding company are required to disclose full information about the

subsidiaries.

A Holding Company is not allowed to interfere in the disinvestment decision of a sub-subsidiary

company even if one of the effect of disinvestment could have been the loss of position as a

Holding company49

.

48 Unlisted Public Companies Amendment Rules, 2011 published in the Gazette of India, Extraordinary -PARTI I ,

SECTION-3, SUB SECTI ON (i) of dated the 14.12.2011)49 BDA Breweries v. Cruickshonk & Co. Ltd,(1996) 85 Comp Cas 325 Bom.

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2. Subsidiary Company: A company is known as a subsidiary of another company when its

control is exercised by the latter (called holding company) over the former called a subsidiary

company50

. Where a company (company S) is subsidiary of another company (say Company H),

the former (Company S) becomes the subsidiary of the controlling company (company H).It is a

company whose parent is a majority shareholder 51

. For the purposes of liability, taxation and

regulation, subsidiaries are distinct legal entities.

A Subsidiary company may lose its separate identity to a certain extent in two cases. Firstly, the

Legislature may brush aside the legal forms and require the companies in a group to present a

 joint picture. Thus, Section 212-14 contain provisions “designed primarily to give better

information of the accounts and financial position of the group as a whole to the creditors,

shareholders and public.52

 

Secondly, the Court may on the facts of case refuse to grant a subsidiary company an

independent status. “It may not be possible to put in a straitjacket of judicial definition as to

when the subsidiary company can really be treated as a branch, or an agent , or a trustee of the

holding company. Circumstances such as the profits of the subsidiary company being treated as

those of the parent company, the control and conduct of business of the subsidiary company

resting completely in the nominees of the holding company”53

.

3. Associate Company: Associate is used synonymously to describe a company whose parent

only possesses a minority stake in the ownership of the company54

.

V. On the basis of Ownership of companies

a) Government Companies. A Company of which not less than 51% of the paid up capital is

held by the Central Government of by State Government or Government singly or jointly is

known as a Government Company55

. It includes a company subsidiary to a government

50 § 4 (I) of Companies Act,195651  Albert Phung is a writer and analyst for Investopedia.com.He discussed it in FAQ.available at http://www

.investopedia.com/ask/ answers /06/subsidiaries.asp#ixzz2CG5KN54W  accessed on 15th Nov,201252 Avtar Singh, “COMPANY LAW”,(15th Edn,2009).Eastern Book Company , Lucknow at P.29 . See also, Liability

of a Corporation for Acts of a Subsidiary or Affiliate,(1958) 71 Harv L R 112253 Kapur .J in Freewheels(India) Ltd. v. Dr. Veda Mitra, AIR 1969 Del 25854 Id.55 § 617 of the Companies Act,1956

http://www.investopedia.com/terms/m/majorityshareholder.asphttp://www.investopedia.com/terms/m/majorityshareholder.asphttp://www.investopedia.com/terms/m/majorityshareholder.asp

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company. The share capital of a government company may be wholly or partly owned by the

government, but it would not make it the agent of the government56

.The staff members of the

company are not the Government employees and hence, the Government is not liable to pay the

salary of the staff of a Government Company57

.The auditors of the government company are

appointed by the government on the advice of the Comptroller and Auditor General of India58

.

The Annual Report along with the auditor‟s report is placed before both the House of the

 parliament.59

 

Hitting the reality of the situation, Krishna Iyer .J remarked “The true owner is the state and the

effective collectorate is the state and the accountability for actions to the community and to

 Parliament is of the state. Nevertheless a distinct juristic person with a corporate structure

conducts the business.”60

 

Some of the examples of Government companies are - Mahanagar Telephone Corporation Ltd.,

 National Thermal Power Corporation Ltd., State Trading Corporation Ltd. Hydroelectric Power

Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine Tools Ltd. etc.

b) Non-Government Companies. All other companies, except the Government Companies, are

called non-government companies. They do not satisfy the characteristics of a government

company as given above.

Some of the example of Non-Government Companies are- Reliance Industries Limited, WIPRO

Limited etc.

VI. On the basis of Nationality of the Company

56  Heavy Engineering Mazdoor Union v. State of Bihar, AIR 1970 SC 82; Central Inland Water Transport

Corporation Ltd. v. Brojo Nath Ganguly , AIR 1986 SC 1571:It was stated if there is an instrumentality of agency of

the state which has assumed the garb of a Government Company, it does not follow that it thereby ceases to be an

instrumentality of agency of the state.57 A.K Bindal V. Union of India , (2003) 5 SCC 16358 § 619(2) of the Companies Act,195659 § 619 A of the Companies Act,1956 (Inserted by Act 65 of 1960, § 200 (w.e.f 28-12-1960)60Supra, note 52 at p.22

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way of their future growth. Instead the Committee recommends enabling of new vehicles for

 business, such as Limited Liability Partnerships, through separate legislation, if

necessary66

. Associations, Charitable Companies etc. licensed u/s 25 of the existing Companies

Act, should not be treated as small companies irrespective of their gross assets67

. The law should

 provide a framework compatible to growth of small corporate entities. Exemptions should

however facilitate compliance by small companies in an easy and cost effective manner. These

should not incentivize concealment of true size by any entity or be a barrier to growth of small

companies68

. However, public limited companies cannot qualify to be small companies.

Other companies: All companies other than small companies are included under other

companies. It is irrespective that the particular companies are Private or Public, listed or unlisted,

limited or unlimited, Government or Foreign Companies.

VIII. On the basis of business activities undertaken:

Company is a form of business organizations in which the individuals contribute some amount of

capital69

. The Companies Act, 1956 broadly classifies the companies into private and public

companies and provides for regulatory environment on the basis of such classification. However,

with the growth of the economy and increase in the complexity of business operation, the forms

of corporate organizations keep on changing. Classification of Companies can therefore takemany shapes and a multiple classification of companies can be made.

1. Section 25 Companies70

: Section 25 Companies are companies formed for solely promoting

art, commerce, science, literature, charity, religion and other useful objects71

. It is to be granted a

license by the Central government recognized for such purpose. It is required to apply its profits

only for promoting its objects and for other purposes. It is not required to pay dividend out of its

66 Id. at ¶ 4.367 Id. at ¶ 4.468 Id.69  Alok Patnia, ”Section 25 Companies under Companies Act,1956 ” available at http://taxmantra.com/2012/05/

section-25-companies-in-the-companies-act-1956/  accessed on 17th Nov,201270  List of Section 25 Companies are available at http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/ Section25

Companies.pdf   Last updated on 16th Nov,201271 § 25 (1) (a)of Companies Act,1956

http://taxmantra.com/2012/05/%20section-25-companies-in-the-companies-act-1956/http://taxmantra.com/2012/05/%20section-25-companies-in-the-companies-act-1956/http://taxmantra.com/2012/05/%20section-25-companies-in-the-companies-act-1956/http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Section25%20Companies.pdfhttp://taxmantra.com/2012/05/%20section-25-companies-in-the-companies-act-1956/http://taxmantra.com/2012/05/%20section-25-companies-in-the-companies-act-1956/

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 profits to its members72

. Due to better laws, Section 25 companies have the most reliable

strongest organizational structure.

The advantages of these companies are that a partnership firm is allowed to be its members73

.

There is a minimum requirement of share capital in comparison to other Companies. Publication

of name is not necessary. It can increase the no. of directors without obtaining prior permission

from Central Government. If articles of Sec 25 Companies provide for election of directors by

 ballot then provisions of Sec 257 does not apply to them. It can appoint any person as Secretary

as they thinks fit. Members of a charitable company under section 25 have been granted the right

of inspection by clause 9 of Annexure 1 to the Companies Regulations, 195674

.

2. Producer Companies: With the coming into force on February 6 of the Companies

(Amendment) Act 2002, (1 of 2003), another category, `producer companies,' finds a place in theCompanies Act,1956

75.Part IX A of the Companies Act,1956 explicitly deals with the Producer

Company. It is based on the recommendations of an expert committee led by noted economist,

Y. K. Alagh. Producer company is to indicate that only certain categories of persons can

 participate in the ownership of such companies. The members have necessarily to be `primary

 producers,' that is, persons engaged in an activity connected with, or related to, primary produce.

Primary Produce is a produce of farmers arising from agriculture including animal husbandry,

horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee

raising and farming plantation products: produce of persons engaged in handloom, handicraft

and other cottage industries: by - products of such products; and products arising out of ancillary

industries76

. Producer Company means a body corporate having objects or activities specified in

section 581B and registered as Producer Company under the Companies Act, 195677

. The

disadvantages of Producer Company is that The administration and management of „Producer

Companies‟ is not in tune with general framework for companies with liabilities limited by

shares/guarantees. The shareholding of a „Producer Company‟ imposed restrictions on its

transferability, thereby preventing the shareholders from exercising their exit options through a

72 §§ 25 (1) (b) and 3 of Companies Act,1956;also see ADRBM Mandal v. Joint Charity Commr,(1973) 43 Comp

Cas 361 Bom.Western UPchamber of Commerce & Industry has been granted licence under this section.73 § 25(4) of Companies Act,195674 Supra, note 52 at p.44375 GSR No 135(E) : The Companies (Amendment) Act ,2002 (w.e.f 6-2-2003)76 § 581A (j) of Companies Act,195677 Id.

http://framecircular%28%27noti_05022003_2%27%29/http://framecircular%28%27noti_05022003_2%27%29/

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market determined structure. It was also not feasible to make this structure amenable to a

competitive market for corporate control and the Corporate Governance regime applicable to

companies could not be properly imposed on this form78

.

3. Investment Companies: It is a company whose principal business is the acquisition of shares

,stock, debentures or other securities79

.The Department of Company Affairs has clarified the

 position of an investment company further and observed that whether a company is an

investment company or not, is a question of fact which has to be decided in relation to the actual

 business transacted by the company80

.The word “whose principal business is the acquisition of

shares” implies that the company concerned is expected to hold shares etc. acquired by it for a

reasonable time .In substance, if the whole or substantially whole of the company‟s business

relates to shares, securities, stock and debentures etc. it should be treated as an investmentcompany.

4. FERA Companies: The Companies operating in India under the Foreign Exchange

Regulation Act, 1973 are technically called the FERA Companies. They broadly fall under

following categories: Indian Companies having no foreign interests or having less than 40

 percent foreign interest, Indian Companies having more than 40 percent non-resident interest81

 

and Foreign incorporated companies which are registered in India merely for business

operations. The Central Government may impose certain restrictions on FERA Companies under

Section 26 of the Foreign Exchange Regulation Act ,1973.

5. Chit Fund Companies82

:Chit fund company means a company managing, conducting or

supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit

Funds Act, 198283

. The main objective of Chit Fund company is to carry on the business of

conducting chits (auction and other chits) daily, weekly, by-weekly, monthly, quarterly and are

such intervals as the company may decide from time to time and to lend money either with or

78 Supra, note 21 , at Chapter 3, ¶ ¶ 9.1 and 9.279 Proviso to § 372(10) of Companies Act,195680 Supra, note 5 at p.7381 Such companies were earlier known as “Foreign Controlled Companies”. 82  List of Chit Fund Companies are available at http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_

FundCompanies.pdf  Last updated on 16th Nov,201283  § 2(1)(h) of Prevention of Money Laundering Act,2002 available at http://fiuindia.gov.in/pmla-section2.htm 

accessed on 17th Nov,2012

http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_%20FundCompanies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_%20FundCompanies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_%20FundCompanies.pdfhttp://fiuindia.gov.in/pmla-section2.htmhttp://fiuindia.gov.in/pmla-section2.htmhttp://fiuindia.gov.in/pmla-section2.htmhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_%20FundCompanies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/Chit_%20FundCompanies.pdf

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without security upon such terms and conditions as the company may think fit to the subscribers

of the chits and to guarantee the performance of the contract by any such person84

.

6. Non-Banking Finance Companies85

: A Non-Banking Financial Company (NBFC) is a

company registered under the Companies Act, 1956 and is engaged in the business of loans and

advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local

authority or other securities of like marketable nature, leasing, hire-purchase, insurance business,

chit business but does not include any institution whose principal business is that of agriculture

activity, industrial activity, sale/purchase/construction of immovable property. A non-banking

institution which is a company and which has its principal business of receiving deposits under

any scheme or arrangement or any other manner, or lending in any manner is also a non-banking

financial company

86

. Non-banking financial companies (NBFCs) are fast emerging as animportant segment of Indian financial system. It is an heterogeneous group of institutions (other

than commercial and co-operative banks performing financial intermediation in a variety of

ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc. They raise

funds from the public, directly or indirectly, and lend them to ultimate spenders. They advance

loans to the various wholesale and retail traders, small-scale industries and self-employed

 persons. Thus, they have broadened and diversified the range of products and services offered by

a financial sector. Gradually, they are being recognised as complementary to the banking sector

due to their customer-oriented services; simplified procedures; attractive rates of return on

deposits; flexibility and timeliness in meeting the credit needs of specified sectors; etc87

.

Under the Act, it is mandatory for a NBFC to get itself registered with the RBI as a deposit

taking company. This registration authorises it to conduct its business as an NBFC. For the

registration with the RBI, a company incorporated under the Companies Act, 1956 and desirous

of commencing business of non-banking financial institution, should have a minimum net owned

fund (NOF) of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999).

84 Prize Chits and Money Circulation Schemes (Banning) Act, 1978.85List of NBF Companies are available at http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.

 pdf   Last updated on 16th Nov,201286  “Frequently Asked Questions on NBFCs” available at http://www.rbi.org.in/scripts/FAQView.aspx?Id=71 

accessed on 17th Nov,2012 87  Business Financing, ”Non-Banking Finance Companies(NBFCs)” available at http://business.gov.in/business

financing/non_banking.php  accessed on 17th Nov,2012

http://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=195601http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://business.gov.in/business%20financing/non_banking.phphttp://business.gov.in/business%20financing/non_banking.phphttp://business.gov.in/business%20financing/non_banking.phphttp://business.gov.in/business%20financing/non_banking.phphttp://business.gov.in/business%20financing/non_banking.phphttp://www.rbi.org.in/scripts/FAQView.aspx?Id=71http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/NbfcCompanies.%20pdfhttp://business.gov.in/outerwin.php?id=http://indiacode.nic.in/rspaging.asp?tfnm=195601

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As per the RBI Act88

, a 'non-banking financial company' is defined as:- (i) a financial institution

which is a company; (ii) a non banking institution which is a company and which has as its

 principal business the receiving of deposits, under any scheme or arrangement or in any other

manner, or lending in any manner; (iii) such other non-banking institution or class of such

institutions, as the bank may, with the previous approval of the Central Government and by

notification in the Official Gazette, specify.

7. Plantation Companies89

: Plantation Companies issue agro bonds and other deposit schemes

at high rates of interest and promise to produce and market plantation products. Plantation

companies have for long operated in a regulatory vacuum. They raise money and invest in

agriculture and related activities. Since, They are not non-banking finance companies, they are

not under the ambit of the Reserve Bank of India (RBI). They raise money that is not defined asdeposits, hence they are not regulated by the Department of Company Affairs (DCA) and since

the money raised is not invested in securities, they do not come under SEBI's purview. So, there

was no government regulatory agency aggrieved investors could turn to in case the companies

defaulted90

.But later on, the Government decided to regulate these schemes as “Collective

investment schemes” coming under the provisions of section 11(2)(c) of the SEBI Act91

. There is

a great potential for plantation companies in Green Business in India.

8. Dormant Company: Through the insertion of Dormant Company under the Companies Bill,

2011, the Ministry of corporate Affairs have taken step to designate a company as dormant

company. A Dormant company will enjoy a number of relaxations and they can revert to a full

fledged company once they apply for it. Dormant companies can be used for holding patents,

trademarks, copyrights, designs, other rights and intellectual properties. Many prospective

entrepreneurs such as scientists with their research products, artists with their registered artwork,

singers with their music compilations, authors with their books can think of starting their own

companies to hold these intellectual properties and they can get their company designated as a

88  §45-I(f) of the RBI Act, 193489  List of Plantation Companies are available at http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/

Plantation_Companies.pdf  Last updated on 16th Nov,201290 V Shankar Aiyar,”  A slow-moving administration and a toothless SEBI have failed to check fraudulent plantation

companies”, India Today,Nov 2nd  ,1998 available at http://archives.digitaltoday.in/indiatoday/02111998/biz.html 

accessed on 17th Nov,2012 91  SEBI Act.1992-§ 11(1)  (c)  registering and regulating the working of collective investment schemes, including

mutual funds.

http://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Plantation_Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Plantation_Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Plantation_Companies.pdfhttp://archives.digitaltoday.in/indiatoday/02111998/biz.htmlhttp://archives.digitaltoday.in/indiatoday/02111998/biz.htmlhttp://archives.digitaltoday.in/indiatoday/02111998/biz.htmlhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Plantation_Companies.pdfhttp://www.mca.gov.in/MCA21/dca/RegulatoryRep/pdf/%20Plantation_Companies.pdf

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dormant company. When a dormant company comes to a position to do business as a normal

company they can apply to get re-designated as a fully fledged company92

.

A company is considered dormant during a period in which no accounting transaction occurs93

. 

Where a company is formed and registered under the Act for a future project or to hold an asset

or intellectual property and has no significant accounting transaction, such a company or an

inactive company may make an application to the Registrar in such manner as may be prescribed

for obtaining the status of a dormant company.94

 

9. Nidhi Companies : The First committee which studies the functioning of the Nidhi Company

was Viswanatha Shastri Committee in 1965, it was followed by various other committees95

.

 Nidhi company is a company registered under Companies Act and notified as a “Nidhi

company” or “Mutual Benefit Society by the Central Government96

. It is a non-banking finance

company doing the business of lending and borrowing with its members or shareholders.

Chapter XXVI of the Companies Bill 2011 defines “Nidhi” as a company which has been

incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its

members, receiving deposits from, and lending to, its members only, for their mutual benefit, and

which complies with such rules as are prescribed by the Central Government for regulation of

such class of companies.

97

 Though Sabanayagam Committee Report on Nidhis

98

  had suggestedfollowing definition as “Nidhi is a company formed with the exclusive object of cultivating the

habit of thrift, savings and functioning for the mutual benefit of members by receiving deposits

only from individuals enrolled as members and by lending only to individuals, also enrolled as

members, and which functions as per Notification and Guidelines prescribed by the DCA. The

92 Anjan Kumar Roy, Corporate Law Advisor,ANJAN KUMAR ROY & CO. Company Secretaries,”Company Bill ,

2009 The Impact , available at http://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-

introduced-to.html accessed on 17th Nov,2012 93

  “Dormant Companies” available at http://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocalCompany/Dormant+Companies.htm Last updated on 15th Sept,200994 Clause 455 of the Companies Bill 201195 “Sabanayagam Comt. Report on Nidhis” available at http://www.mca.gov.in/Ministry/nidhi.html  Last accessed on

17th Nov,201296 § 620-A of Companies Act,1956 97  Bill No. 121 of 2011, http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf   accessed on 14th

 Nov,201298  “REPORT OF SABANAYAGAM COMMITTEE ON NIDHIS” Central Government vide Notification

 No.5/7/2000-CL.V dated 23rd  March,2000 available at http://www.mca.gov.in/Ministry/nidhi/reportsaba.pdf  

http://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-to.htmlhttp://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-to.htmlhttp://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-to.htmlhttp://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal%20Company/Dormant+Companies.htmhttp://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal%20Company/Dormant+Companies.htmhttp://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal%20Company/Dormant+Companies.htmhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdfhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdfhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal%20Company/Dormant+Companies.htmhttp://www.acra.gov.sg/Company/Making_Changes/AnnualReturnofLocal%20Company/Dormant+Companies.htmhttp://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-to.htmlhttp://indiabusinesslawadvice.blogspot.in/2010/05/companies-bill-2009-was-introduced-to.htmlhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdf

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word Nidhi shall not form part of the name of any company, firm or individual engaged in

 borrowing and lending money without incorporation by DCA and such contravention will attract

 penal action.” 

The primary object of Nidhis has been to carry on the business of accepting deposits and lending

money to member-borrowers only against jewels, etc., and mortgage of property. Nidhis were

not expected to engage themselves in the business of Chit Fund, hire purchase, insurance or in

any other business including investments in shares or debentures. As stated these Nidhis do their

 business only with Members. Such Members are only individuals .Bodies Corporate or Trusts

are never to be admitted as Members99

.

10. Companies Regulated by Special Acts: The Companies which are regulated by Special

Acts such as the Banking Companies Act,1949; the Insurance Companies governed by the

Insurance Act,1938;Electricity (Supply) Act,1948;Food Corporation Act,1964 etc. shall have to

 be incorporated and registered under the Companies Act and therefore the provisions of the

Companies Act,1956 shall also apply to them like any other company except insofar as they are

inconsistent with the Special Act which constitutes them100

.

Need for Classification of Companies

Classification refers to recognizing, naming, and describing units or elements to be mapped. The

objective of all classifications is the orderly arrangement of a large array of objects so that their

differences and similarities can be better understood. We classify land and water resources for

any number of reasons, including: Separating like things from unlike things by increasing

homogeneity. This in turn increases accuracy in classification and decreases sampling effort.

Setting the boundaries of a study area or an area we hope to influence. Looking for identifiable

 patterns or identifying spatial context and allowing extrapolation. It aids in the development of

restoration endpoints by developing identifiable and compatible classes within the classification.

Displaying or communicating complex relationships more effectively for planning, restoration,

and management.

99  “Sabanayagam Comt. Report on Nidhis”  available at http://www.mca.gov.in/Ministry/nidhi.html  accessed on

17th Nov,2012100 Supra, note 5 at p.75

http://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdfhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi.htmlhttp://www.mca.gov.in/Ministry/nidhi/reportsaba.pdf

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The Companies Act, 1956 broadly classifies the companies into private and public companies

and provides for regulatory environment on the basis of such classification. However, with the

growth of the economy and increase in the complexity of business operation, the forms of

corporate organizations keep on changing. There is a need for the law to take into account the

requirements of different kinds of companies that may exist and seek to provide common

 principles to which all kinds of companies may refer while devising their corporate governance

structure. Rigid structures, unnecessary controls and regulations inhibit the risk taking initiatives

of the entrepreneurs. Private companies and small companies, who do not generally go for public

issues or deposits for their financial requirements but utilize their personal or in-house resources,

need to be given flexibility and freedom of operation and compliance at a low cost. Equally,

 public companies that access capital from public need to be subjected to a more stringent regime

of corporate governance. To enable a comprehensive framework for different forms of corporate

organizations, the Company Law should ensure multiple classifications of companies. It should

also enable smooth change-over of companies from one type to another 101

.

The law should recognize the potential for diversity in the forms of companies and rather than

seeking to regulate specific aspects of each form, seek to provide for principles that enable

economic inter-action for wealth creation on the basis of clear and widely accepted principles102

.

101 “Classification and Registration of Companies” at ¶ 1available at http://www.mca.gov.in/Ministry/chapter3. html 

Last updated on 16th Nov,2012102  Id. 

http://www.mca.gov.in/Ministry/chapter3.%20htmlhttp://www.mca.gov.in/Ministry/chapter3.%20htmlhttp://www.mca.gov.in/Ministry/chapter3.%20htmlhttp://www.mca.gov.in/Ministry/chapter3.%20html