Types of Companies in India: Classification, Forms, and Registration Procedure under the Law

India recognizes several types of companies, each with a specific purpose and distinct legal features. Understanding the characteristics of all of these variations will help you choose the most suitable business structure and go through the registration process correctly. After that you may integrate a reliable payment solution like Paykassma to streamline operations.

What Is a Company Under the Companies Act 2013?

A company is a type of juridical person formed in accordance with the Companies Act of 2013. It is an organisation that exists separately from its shareholders. When you incorporate a firm, it gets its own legal status, which allows it to own property, enter into contracts and be liable. The most popular business structure in India is the private business limited company Pvt Ltd, which attracts entrepreneurs seeking limited liability protection.

Definition and Meaning of a Company

A company is a group of people who invest in a common fund to run a business. Profits are typically shared among shareholders, while directors handle daily management. Its key feature is legal continuity — the firm can conduct business even if there is a change of shareholders.

Legal Characteristics of a Company Under Indian Law

Corporations that are based in India have several important characteristics. Some of the major ones include:

• Separate legal entity;
• Limitation of liability;
• The corporation continues to exist despite changes in the members;
• The corporation has an official seal for legal documents;
  The corporation has legal capacity to own property and participate in legal proceedings.

These are the key aspects that indicate the existence of a firm under Indian legislation.

Why Form a Company in India? Benefits and Purpose

When you formally and legally create a firm, there are many benefits. Firstly, limited liability. You risk only the investment you have made. Secondly, the business enjoys perpetual succession, continuing to work even if there is a change of participants. Thirdly, the official status of the firm creates a professional image, increasing the confidence of customers and partners. Also, types of companies enjoy tax benefits, which helps reduce the financial burden.

Classification of Companies Under the Companies Act

The Companies Act classifies businesses based on various criteria. These include size, ownership, management and specific traits of every kind of company.

Company Categories According to Legal and Operational Criteria

In this category corporations may be categorized based on the following criteria:

• Firms based on size. This includes micro, small, mid-sized and major corporations;
• By the number of members. This can be single person, private or public;
• By type of liability. The corporation may be structured share-limited, guarantee-limited or with unlimited;
• By control. This includes holding companies, subsidiaries, associates;
• By listing on the stock exchange. Such companies are categorised into public companies and unlisted companies.

Firms are classified according to legal and operational criteria including size, number of members, type of liability, control structure and stock exchange listing status.

Types of Companies Recognized by Indian Law

Indian legislation recognises several basic categories of business in India, each of which has its own characteristics and is suitable for certain types of business in India. The recognised variations include: private limited companies, public companies, one-person companies, firms limited by guarantee, government companies, unlimited liability companies, companies under Section 8, foreign companies and limited liability partnerships (LLPs).

Types by Size

The size of a company affects its basic reporting requirements, benefits and liabilities. Firms are classified by size based on their turnover and capital.

Micro Companies

Micro companies are the smallest business structures in India. These companies typically employ less than 10 workers. Micro Companies are subject to simplified reporting and record keeping requirements.

Small Companies

Small companies are slightly larger than micro companies. They receive priority sector lending from banks and financial institutions. This category enjoys certain benefits including simplified financial reporting.

Medium Companies

Medium companies occupy an intermediate position between small and large enterprises. They may qualify for CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) support. Medium companies are subject to stricter reporting rules than small companies.

Types of Companies by Membership Structure

Another category that determines the type of company is the membership structure. Choosing the right structure is important for the success of the business and to ensure efficient financial transactions in the company, which can be further optimized by integrating reliable payment solution such as Paykassma.

One Person Company (OPC)

One Person Company is a relatively new category of business introduced by the 2013 law. It has one owner who is an individual and has limited liability. Such businesses are ideal for sole proprietors seeking the advantages of formal business organization.

Private Limited Company

It is the most common business structure in India. It has between 2 to 200 members, restrictions on transfer of shares, and a ban on public offerings. This variation is ideal for family businesses, startups and medium-sized enterprises.

Public Limited Company

A publicly traded corporation represents a substantial commercial entity structure with the ability to raise capital from the general public. There is no cap on the number of shareholders. The company has the ability to freely transfer and place shares to the public. Public limited companies are appropriate for substantial enterprises requiring significant capital.

Types of Companies Based on Liability

The degree of liability of company members to creditors is an important factor in choosing a business category.

Company Limited by Shares

In a company limited by shares, the liability of the members is limited to the value of the shares they own. This indicates that should the corporation face insolvency, the members can only lose the amount of their investment. This category of business is most common in India. Most private and public ones belong to this type.

Company Limited by Guarantee

In a firm limited by guarantee, the members have to contribute a certain amount in case of liquidation. This type is often used by non-profit organisations and is suitable for clubs, associations and charities. It is rarely used for commercial purposes.

Unlimited Company

An unlimited company is a rare category where the members are fully liable for the debts of the corporation. However, due to high risks, this variation is hardly used in modern business practice.

Types of Companies by Control and Ownership

Relationships between companies can create specific ownership and control structures.

Holding and Subsidiary Companies

Holding companies and subsidiaries form a corporate group. The former control the other companies by holding more than 50% of voting shares. This structure allows the creation of complex business entities and ensures efficient management of different business lines.

Associate Companies

This is a type where an external corporation exerts substantial sway without dominant authority. There are special rules for reporting and transactions. This category is usually used for strategic partnerships and joint ventures. 

Types of Companies by Stock Exchange Listing

The capacity to exchange equity securities in public markets creates two main categories of companies.

Listed Company

A listed company is a public company whose shares are traded on a stock exchange. That is, its shares are accessible to a larger group. Such companies are governed by SEBI regulations. While listing helps in raising substantial capital, it requires compliance with a lot of regulations.

Unlisted Company

An unlisted company is a corporation whose shares are not traded on the stock exchange. It may be privately held or publicly traded, though not listed. Such corporations have less stringent disclosure requirements and simpler governance rules. Most firms are unlisted.

Other Various Types of Companies in India

Apart from the basic categories, there are other business structures in India. They also have their own features and characteristics.

Partnership Firms

A partnership is an association of two or more persons to carry on business. There are two types in India:

• Conventional partnership. Governed by the Partnership Act, 1932, all partners have unlimited liability;
• Limited Liability Partnership (LLP). A new category that combines the flexibility of a partnership with the limited liability of a company.

LLP is becoming increasingly popular with professional service firms and small businesses.

Sole Proprietorship

Sole proprietorship is the simplest variation of business where there is one owner and full control. It is ideal for emerging ventures and modest enterprises and requires minimal legal formalities. 

Section 8 Company (NGO Form)

A Section 8 Company is a not-for-profit organisation set up for charitable purposes. These businesses do not operate for profit, but for the public welfare purposes. They are exempt from many corporate requirements and receive tax relief. This category is most commonly used by charitable foundations, educational institutions and social enterprises.

Foreign Company

This is a firm that is registered outside India but can operate through a branch, project office or subsidiary. They must comply with Indian legislation and also obtain special permission to operate. These businesses are regulated by the Reserve Bank of India.

Joint Venture Companies

A joint venture is a business partnership between two or more corporations. In such a case, the partners pool resources, risks and management. These firms are usually created between Indian and foreign enterprises to capitalize on each other's strengths.

How to Start a Company in India: Step-by-Step Guide

The process of setting up and incorporating a company is highly regulated and must comply with the provisions of Indian company legislation. 

Step 1: Choose the Appropriate Company Structure

The first step is to determine the most appropriate type of business structure. This decision should take into account the scale of the proposed business, the number of future participants, the amount of capital required, as well as taxation and liability issues. Choosing the right category is the foundation for your business and will help you avoid many problems.

Step 2: Register a Company Name on the MCA Portal

Once the firm structure has been determined, a unique name needs to be registered. This process is done through the Ministry of Corporate Affairs (MCA) portal by submitting a RUN (Reserve Unique Name) application. It is best to try several name options at once as some may be rejected. Once the fee is paid, the name request will be reviewed and approved by the Registrar of Companies.

Step 3: Obtain DSC and DIN

To officially register an enterprise in India, you need to obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). Note that these documents are very important as they allow you to sign legal documents electronically and confirm the authority of the directors. They can be obtained through specialised agencies or at the same time as submitting the SPICe+ form.

Step 4: Prepare & Submit SPICe+ Form

SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) is a single integrated application for incorporating a business in India. This document includes all the necessary information about the company, its executive leadership and stockholders as well as the organizational regulations and constitutional document. The category is filed electronically through the official MCA portal and allows simultaneous registration for different taxes.

Step 5: Company Registration Certificate & Post-Incorporation Tasks

Upon successful review and approval of the SPICe+ form, you will receive a company registration certificate, a Permanent Account Number (PAN) and, if required, a Goods and Services Tax (GST) number. However, you will need to set up a reliable payment system like Paykassma and obtain all the necessary industry licences for the business to be fully operational. Once all these steps are completed, your business will officially be listed in the Registrar of Companies.