Types of Companies
Types of companies are based on the characteristics, ownership, liability, and the company act of various countries.
There is no fixed type or classification of a company.
So; the type or classification of a company depends on many things:-
- formation,
- incorporation,
- control,
- ownership,
- the number of members,
- liability,
- declaration by the leader of the country (King, Queen, President),
- special act or bill passed by the parliament or congress,
- the purpose of the company,
- location of the company,
- investment type of the company.
Different Types of Company
As we now know that there are many different types of companies. Let take a look and try to understand each of them.
- Types Of Companies Based On The Number Of Members
- Public Limited Company
- Private Limited Company
- One Person Company
- Types Of Companies Based On The Liability Of The Members
- Companies Limited By Shares
- Companies Limited By Guarantee
- Unlimited Company
- Types Of Companies Based On The Mode of Incorporation
- Chartered Or Royal Chartered Companies
- Registered Or Incorporated Companies
- Unregistered Company
- Other Types
- Limited Liability Company (LLC)
- Business Corporation
- Foreign Company
- Government Company
- Holding Company
- Subsidiary Company
- Associate Company
- Listed Company
- Unlisted Company
- Dormant Company
- Nidhi Company
Let’s try to understand each of them;
Types of Companies Based on The Number of Members
Based on the number of members/shareholders of the company; 3 types of companies are (1) public limited company, (2) private limited company, and (3) one-person company.
Public Limited Company
Public limited companies are listed on the stock exchange where it’s share/stocks are traded publicly.
A public limited company;
- must have a minimum number of members which is mandatory by the company law,
- It can have an unlimited number of members,
- operates as a separate legal entity from its owners,
- stocks are traded publicly,
- publishing the complete and true financial position of the company is required by law so that investors can determine the true worth of its stock (shares),
- has limited liability, which is by shareholders share.
- shareholders of a public limited company are limited to potentially lose only the amount they have paid for the shares they own.
A public limited company called “Plc” commonly in the UK and “Inc.” is used in the United States.
Private Limited Company
A private company has a separate legal entity, owned entirely by a relatively small group of individuals or groups (minimum 2), and shares cannot be publicly traded in stock markets.
A private limited company;
- has separate legal entity from its owners,
- does not require to publish the company’s financial positions,
- must have a minimum of 2 members and a maximum number of members (usually 50) that is defined in the country’s company law,
- has limited liability,
- faces fewer regulations and government oversight than a public limited company.
Companies can go from private to public, by selling shares to the public, often as a way to raise a large amount of money. In reverse, public companies can be taken private if, for example, a majority owner wants to consolidate control.
One Person Company
A member may hold virtually the entire share capital of a company. Such a company is known as a “one-person company”. This can happen both in a private company and a public company.
The other member/members of the company may be holding just one share each. Such other members may be just dummies to fulfill the requirements of the law as regards minimum.
Types of Companies Based on The Liability of The Members
Based on the liability type and limit of the members/shareholders of the company; 3 types of companies are (1) companies limited by shares, (2) companies limited by guarantee, and (3) unlimited company.
Companies Limited By Shares
A company limited by shares is a registered company having the liability of its member limited by its memorandum of association to the amount, if any, unpaid on the shares respectively held by them.
A shareholder cannot be called upon to pay more than the amount remaining unpaid on his shares.
Shareholder’s assets cannot be called upon for the payment of the liabilities of the company if nothing remains to be paid on the shares purchased by him.
Such a company is also known as a “Share Company.”
Companies Limited By Guarantee
A company limited by guarantee is one having the liability of its members limited by the memorandum to such amount as the members may respectively undertake by the memorandum to contribute to the assets of the company in the event of its being wound up.
Such a company is also known as a “Guarantee Company”. A pure “guarantee company” does not have a share capital.
Unlimited Company
An unlimited company is where the liability of the members or shareholders is not limited.
An unlimited company;
- incorporated with or without a share capital (and similar to its limited company counterpart),
- but where the legal liability of the members or shareholders is not limited:
- that is, its members or shareholders have a joint, several and non-limited obligations to meet any insufficiency in the assets of the company to enable settlement of any outstanding financial liability in the event of the company’s formal liquidation.
Types of Companies Based on The Mode of Incorporation
Based on the mode of incorporation of the company; 3 types of companies are (1) chartered Or royal chartered companies, (2) registered Or incorporated companies, and (3) unregistered company.
Chartered Or Royal Chartered Companies
Companies that are incorporated by the royal charter (or similar instrument of government) for trade, exploration, investment, and colonization.
For example;
- East India Company in 1600.
- German East Africa Company in 1884.
- Companhia de Moçambique in 1888.
- Russian-American Company in 1799.
- Barcelona Trading Company in 1755.
Registered Or Incorporated Companies
Companies that are registered under the Companies Act of the country, are Registered Or Incorporated Companies.
However, there is a difference between registered Or incorporated companies.
Forming a new business structure that becomes a recognized person or entity under the law, is incorporating a company.
The next step of incorporating is company formation. It means to set up documents, and legal requirements required to establish the company legally.
Once it is done; the company is submitted for registration under the Companies Act of the country.
Unregistered Company
In simple terms, an unregistered company is a business that is registered under the Companies Act of the country.
Therefore it is not covered by the law. an unregistered company can be many types; like single owner/sole-proprietorship, or partnerships.
Other Types
There are many other types of company which may fall into the previous types, but they have some distinct characteristics that make them different.
Let’s take look.
Limited Liability Company (LLC)
Limited liability companies (LLC) is a form of business that is allowed in the United States. The law and regulations regarding LLC’s ownership, membership, formulation; varies from State of State.
A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
A Limited liability company (LLCs);
- don’t pay taxes.
- owners are not personally liable for the company’s debts or liabilities.
- profit and losses are treated as personal tax returns,
- much easier to set up than a corporation and provides more flexibility and protection,
- many states don’t restrict ownership,
- If fraud is detected or if a company hasn’t met legal and reporting requirements, creditors may be able to go after the owner(s).
Business Corporation
In the USA; a business corporation is defined as a legal entity established by individual(s) under the laws of a state to conduct particular types of business or transactions.
A business corporation;
- Established for earning profit.
- Depending on state law, a corporation can be owned by just one person and have just one director and officer.
- The corporation exists separately from its shareholders, directors, and employees.
- A corporation is a ‘person’ in the eyes of the law.
- The liability of shareholders is limited to the number of shares held by them.
- Shareholders can transfer ownership interests.
Foreign Company
A foreign company is a company which is incorporated in a foreign country outside the home country under the law of that other country, and want to or has established business in the country.
Government Company
Government company in which not less than fifty-one percent (51%) of the paid-up share capital is held by the Central Government, or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments.
A subsidiary of a Government company is also treated as ‘a Government company.
Holding Company
Where a company has control over another company, it is known as the Holding Company and the company over which control is exercised is called the Subsidiary Company.
A Company is deemed to be under the control of another if;
- That other controls the composition of its Board of Directors; or
- The other company holds more than half in nominal value of its equity share capital
- It is a subsidiary of a third company which itself is a subsidiary of the controlling company.
Subsidiary Company
A subsidiary company is a company owned and controlled by another company; known as a holding company or a parent company. If a parent company has control over the operations of the subsidiary company is called holding company.
A subsidiary company;
- owned and controlled by another company.
- If a Holding company or parent company owns 50% of the voting stock of the subsidiary company, it’s operations are controlled by the holding company.
- If the parent company holds 100% of the voting stock, the subsidiary company structure is referred to as a wholly-owned subsidiary.
Associate Company
An associate company also known as joint ventures; is a firm that is owned in part by a parent company entity who will own a minority or non-controlling stake in the associate company.
Listed Company
Companies, whose share is listed on any stock exchange(s) for public trading is called the listed company or quoted company.
Unlisted Company
And the companies, whose share is listed not on any stock exchange(s) for public trading is called the listed company or quoted company.
Investment Companies
An investment company is a company the principal business of which consists of acquiring, holding and dealing in shares and securities.
It involves only the acquisition and holding of shares and securities and thereby earning income by way of interest, dividend, etc.
These are usually set up by federal or state government, any ministry for the sole purpose of investment in their own country/state businesses or projects or foreign countries and businesses.
Dormant Company
A dormant company;
- has been registered with Companies House
- but do not have any kind of business activity or receiving any form of income
After a business is registered it does not start trading and earning profit right away. In that case; the company must inform the authority (like Companies House, HM Revenue and Customs in the UK) with the reasons that your company is “Dormant”.
Offshore Company
An Offshore Company is a corporation or company or LLC or similar class of entity formed in a foreign country (a different country from the country of residence of the stakeholders); to operate outside of the country of residence.
An Offshore Company;
- established in a foreign country,
- law of the owner’s country of residence does not affect the company,
- only operates outside of the owner’s country of residence,
- usually has no economic activities in the foreign country where it is established and/or owner’s country.
Nidhi Company
A Nidhi company’s hole business is borrowing and lending money between its members; these are known as Permanent Fund, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company.
It only allows individual members. A firm or group or company cannot become a member of a Nidhi company. These are non-banking finance organization in India, recognized under section 406 of the Indian Companies Act, 2013.
Conclusion
Type or Classification of a company will vary greatly, and a company may be defined and categorized in various ways.
For example; “iEdunote” is called Limited Liability Company (LLC) in the USA and PLC in the UK; even though by nature and function they are similar.